Consumer Price Index
A monthly measure of the average change in prices paid by urban consumers for a basket of goods and services — the household reading of the inflation tax.
The Bureau of Labor Statistics publishes the CPI monthly. Two figures are commonly quoted from it: the month-over-month change, and the twelve-month change, which is what people usually mean by “inflation is running at X percent”.
That twelve-month change is the household measure of a rising price level. Sustained inflation is still a monetary phenomenon — money growing faster than output — and the CPI is how most readers see the result, not the cause. See inflation and the explainer.
Two cautions when reading it. “Core” CPI excludes food and energy — not because those do not matter to households, but because they are volatile enough to obscure whether a rise is broad. Stripping them is a diagnostic, not a dismissal. And the Federal Reserve’s 2% target is defined on a different index, the price index for personal consumption expenditures, which weights spending differently and typically runs a little below CPI. That 2 percent is a Committee choice, not a figure in the statute.
A worked example
The index stood at 300.0 twelve months ago and stands at 309.0 today. The twelve-month change is 9.0 divided by 300.0, which is 3.0 percent — the figure a headline would report as “inflation at 3 percent”. Month to month, if the index moved from 308.5 to 309.0, that is 0.16 percent, which coverage would round to 0.2 percent and often annualise to roughly 2 percent, a different number again from the same data.
The index level itself — 309.0 — is rarely quoted, because it only means something relative to its base period. Compounded, even a “low” twelve-month change adds up: the level is the tax that has already been paid.
How to read it in coverage
Check which of three numbers is being reported: the twelve-month change, the one-month change, or the one-month change annualised. They can point in different directions in the same release. “Core” strips out food and energy. And the Federal Reserve’s 2 percent target is on a different index, PCE, which usually runs a few tenths lower — so CPI at 2.5 percent is not necessarily above the Fed’s target. The site’s inflation-rate page shows the twelve-month CPI figure with its stamp.
The headline inflation number in most coverage. It is not the index the Fed targets — that is the PCE price index.