CPI (Consumer Price Index)
Quick Definition
A measure of the average change in prices paid by urban consumers for a basket of goods and services, used as the primary gauge of inflation.
What Is CPI (Consumer Price Index)?
The Consumer Price Index (CPI) is compiled monthly by the Bureau of Labor Statistics (BLS) and tracks price changes across approximately 80,000 items in a representative basket of consumer goods and services. The basket includes categories such as food, housing (including rent and owners' equivalent rent), transportation, medical care, apparel, recreation, education, and communication. CPI is reported in two key forms: headline CPI (all items) and core CPI (excluding volatile food and energy prices). The Federal Reserve monitors CPI closely, though it officially targets the PCE (Personal Consumption Expenditures) price index, which uses a slightly different methodology. Year-over-year CPI change is the most commonly cited inflation rate — when CPI rose to 9.1% in June 2022, it was the highest reading in 40 years and triggered aggressive Fed tightening. CPI also determines Social Security cost-of-living adjustments (COLAs), tax bracket adjustments, and TIPS (Treasury Inflation-Protected Securities) principal adjustments. For investors, CPI reports directly impact bond yields, stock valuations, and Fed policy expectations.
CPI (Consumer Price Index) Example
- 1CPI surged to 9.1% year-over-year in June 2022, the highest since 1981, driven by energy prices, food costs, and supply chain disruptions
- 2Core CPI (excluding food and energy) is often considered a better measure of underlying inflation trends because it strips out volatile components
Related Terms
Core Inflation
A measure of inflation that excludes volatile food and energy prices to reveal underlying, persistent price trends in the economy.
Producer Price Index (PPI)
A measure of average price changes received by domestic producers for their goods and services, often considered a leading indicator for consumer inflation.
Inflation Target
A publicly announced goal for the rate of inflation that a central bank aims to achieve, typically around 2% in advanced economies.
GDP Deflator
A price index that measures the overall level of prices for all goods and services produced in an economy, used to convert nominal GDP to real GDP.
Purchasing Power Parity (PPP)
An economic theory that compares currencies based on how much a standardized basket of goods costs in each country.
GDP (Gross Domestic Product)
The total monetary value of all finished goods and services produced within a country's borders in a specific time period.
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