Consumer Price Index
The Consumer Price Index (CPI) is a monthly measure published by the Bureau of Labor Statistics (BLS) that tracks the average change in prices paid by urban U.S. consumers for a fixed basket of goods and services, and it is the most widely cited gauge of retail inflation in the United States.
The BLS constructs the CPI by pricing a representative 'basket' of approximately 94,000 specific goods and services across categories including food and beverages, housing, apparel, transportation, medical care, recreation, education, and other goods and services. The basket is updated periodically to reflect changing consumer spending patterns, using the Consumer Expenditure Survey. Housing costs — particularly 'owners' equivalent rent,' a calculated estimate of what homeowners would pay to rent their own homes — carry the largest single weight in the index at roughly 30%.
Two variants dominate financial news coverage. 'CPI-U' covers all urban consumers (about 93% of the U.S. population). 'Core CPI' strips out food and energy prices, which are highly volatile and can be distorted by short-term supply shocks, to reveal underlying inflation trends. The Federal Reserve's preferred inflation gauge is actually the Personal Consumption Expenditures (PCE) price index, also published by the BEA, which uses a broader basket and different weighting methodology. However, CPI receives far more media attention due to its longer history and monthly frequency.
CPI reached a 40-year high of 9.1% year-over-year in June 2022, driven by pandemic-era supply chain disruptions, massive fiscal stimulus, energy price spikes following Russia's invasion of Ukraine, and labor market tightness. The Fed responded with its fastest rate-hiking cycle since the 1980s, raising the federal funds rate by 525 basis points in about 16 months. By mid-2023, CPI had fallen back toward 3%, though 'sticky' components — particularly shelter inflation — proved resistant to slowing.
CPI has direct consequences beyond market sentiment. Social Security benefits, federal income tax brackets, TIPS (Treasury Inflation-Protected Securities) payments, and many wage contracts are indexed to CPI, meaning that higher CPI mechanically increases government outlays and corporate labor costs. The CPI report is typically released in the second week following the reference month and consistently ranks among the most market-moving economic data releases of the year.