The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a basket of goods and services. Published monthly by the Bureau of Labor Statistics (BLS), it is the most widely followed measure of inflation in the United States.

Why It Matters

CPI directly affects the daily lives of every American. It determines cost-of-living adjustments for Social Security recipients, influences wage negotiations, and guides rental agreements with escalation clauses. For investors and policymakers, CPI is the primary gauge of whether prices are rising too quickly (inflation) or falling (deflation).

The CPI Basket

The BLS surveys approximately 80,000 consumer items across 75 urban areas monthly. The basket is weighted by typical consumer spending patterns:

CPI vs. Core CPI

Headline CPI includes all items. Core CPI excludes food and energy prices, which tend to be volatile. The Federal Reserve pays more attention to Core CPI (and PCE) for policy decisions because it provides a clearer picture of the underlying inflation trend.

Year-over-Year Measurement

The CPI growth rate shown on ECONPLEX represents the year-over-year percentage change, comparing the current month's index level to the same month one year ago. This approach smooths out seasonal variations.

Market Impact

A hotter-than-expected CPI print often triggers sell-offs in both bonds and stocks, strengthens the dollar, and increases the probability of Fed rate hikes. A cooler reading has the opposite effect—boosting bonds and risk assets while weakening the dollar.