What Is the Consumer Price Index (CPI)?
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What Is the Consumer Price Index (CPI)?

2 Min.

Basics

The Consumer Price Index (CPI) measures inflation as a key economic indicator. The CPI evaluates price fluctuations in a market basket of consumer goods and services over time. The Bureau of Labor Statistics (BLS) regularly releases various consumer price indexes, with the most widely referenced one being the Consumer Price Index for All Urban Consumers (CPI-U).

Tracking Inflation: The Consumer Price Index (CPI)

The Consumer Price Index measures inflation by monitoring price changes in a basket of goods and services consumed by urban households. The Bureau of Labor Statistics releases various consumer price indexes, with the CPI-U being the most widely used one. In June 2021, the CPI revealed a significant year-over-year increase of 5.4%, marking the largest surge since 2008.

To construct the CPI market basket, the BLS conducted surveys to capture consumer spending habits. Over 200 categories of goods and services were selected for monitoring. The CPI adjusts based on average price movements within this market basket.

Economic assistants from the BLS conduct monthly visits or calls to retail stores, professional offices, rental units, and other establishments nationwide. They collect price data for the CPI market basket, which is then reviewed by commodity specialists for accuracy. Statistical adjustments are made as necessary.

Considered a benchmark for inflation in the U.S. economy, the CPI is often used to report inflation rates as percentage changes in the CPI-U.

However, some critics question the CPI's usefulness. The BLS has revised its calculation methodology multiple times, resulting in lower reported price level increases. Consequently, there are concerns that the CPI may underestimate the true impact of inflation, whether intentional or not.

Conclusion

The Consumer Price Index is a vital tool for tracking inflation in the United States. It evaluates the price fluctuations of a diverse market basket of goods and services consumed by urban households. The June 2021 CPI revealed a substantial year-over-year increase of 5.4%, the largest surge since 2008. To construct the CPI market basket, the Bureau of Labor Statistics conducts surveys and selects over 200 categories of goods and services to monitor. Despite being widely used as a benchmark indicator, the CPI has faced criticism for potentially underestimating the true impact of inflation due to revisions in its calculation methodology.

Consumer Price Index (CPI)
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