Consumer Price Index

The Consumer Price Index (CPI) is a key measure of inflation in the United States. It tracks the average change in prices that consumers pay for a basket of goods and services. The Bureau of Labor Statistics (BLS) calculates the CPI monthly, and it is one of the most closely watched economic indicators.

Here's a summary of the CPI:

***What it measures: The CPI measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

***How it's calculated: The BLS collects price data for a variety of goods and services from thousands of retail establishments across the country. These prices are then averaged together, with weights assigned to reflect the relative importance of each item in the typical consumer's budget. 

***Why it's important: The CPI is used to track inflation, which is the rate at which prices are rising. Inflation can erode purchasing power and lead to a decline in living standards. The CPI is also used to index Social Security benefits and other government programs to inflation

More information:

The Consumer Price Index for All Urban Consumers (CPI-U) is a key indicator of inflation in the United States. It's a measurement tool used by the Bureau of Labor Statistics (BLS) to track the average price changes of a basket of goods and services that urban consumers typically purchase.

Here's a breakdown of what CPI-U tells us:
  • Focus on Urban Consumers: The CPI-U specifically looks at spending habits of urban residents, which encompasses roughly 88% of the US population. This includes wage earners, clerical workers, retirees, and even the unemployed.
  • Basket of Goods and Services: The CPI-U tracks price changes for a variety of items, including:
    • Food
    • Clothing
    • Housing (rent and utilities)
    • Transportation
    • Medical care
    • Recreation
    • Education
    • Other services (like haircuts or phone bills) The BLS assigns weights to each category based on how much urban consumers typically spend on them.

  • Inflation Measurement: By comparing the CPI-U from one month (or year) to the next, we can see how much the overall price level has changed. An increase in the CPI-U indicates inflation, meaning your dollar goes less far than before. Conversely, a decrease suggests deflation, where prices are generally falling.

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