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The CPI, or Consumer Price Index, calculates the average change in price over time for a standard array of goods and services that urban consumers pay for each month, including food, energy, housing, transportation, medical care, and other common expenditures.
The CPI is often used as a key indicator of inflation in the U.S. because it enables people to compare the cost of goods and services today to what the same things cost in a previous time period. Notably, the CPI rose 0.6% in September 2026, bringing the 12-month increase to 3.7% (not seasonally adjusted) — signaling a higher-than-anticipated inflation rate. This was alongside a 1.3% monthly (and 6.3% annual) rise in the Producer Price Index (PPI), another key monthly indicator used to gauge inflation, and often viewed in concert with the CPI.
The CPI is produced monthly by the Bureau of Labor Statistics, and is a basic cost-of-living measure for most urban households. In addition to its role as an inflation indicator, the CPI is used to adjust government poverty thresholds, Social Security benefit amounts, and other civil payments. The Federal Reserve also watches the CPI closely, as it can impact interest rates.
Key Points
• The Consumer Price Index (CPI) measures average price changes over time for a basket of goods and services that most urban households use.
• The CPI comprises eight categories of common household expenses, including: food, energy, housing, transportation, medical care, and more.
• The CPI is a standard economic data point that influences Federal Reserve decisions about its 2% annual inflation target, and whether to raise interest rates.
• The CPI is also used to adjust certain government benefits, including Social Security.
• Owing to its impact on the Fed’s decisionmaking, the CPI indirectly influences certain stock market sectors.
What Is the Consumer Price Index (CPI)?
The CPI measures the change in prices that urban consumers paid for a fixed group of goods and services over a certain period, according to the Bureau of Labor Statistics (BLS). The metric tracks the rise and fall of prices, giving economists, consumers, and investors the ability to compare changes over time in the price of eight categories of basic household goods:
• Housing
• Food and beverages
• Apparel
• Transportation
• Medical care
• Entertainment
• Education and communication
• Various services, including taxes and insurance fees
Although the CPI is considered a key indicator of cost of living, it doesn’t include factors that can impact both cost and quality of life: e.g., health, crime levels, water safety, and more.
The CPI definition that most people know is that it’s an indicator of inflation, but it plays into many aspects of the economy, including the stock market (which is important to know when trading stocks online or through a traditional broker).
CPI Meaning and Definition
As mentioned, CPI is short for Consumer Price Index, and it’s an often-cited economic indicator because it captures changes in the cost of living across the country.
The BLS produces indexes that cover two populations: CPI-U covers all urban consumers, representing more than 90% of the population, including: wage earners, technical workers, the self-employed, retirees, and so. The CPI-W represents hourly wage earners and clerical workers, representing approximately 30% of the population.
How the CPI Works
Each month, the BLS contacts retailers, service providers, and rental spaces across the country gathering prices for about 80,000 items that generally fall into the eight categories listed above. The BLS then calculates the price changes for each item and averages them, weighting them according to their importance.
The index then compares the current month or year to a prior base month or year to create a percentage change for comparability. This makes periods of inflation or deflation easier to track, as well as to explain what inflation is and what deflation is and its impact on the economy.
CPI Formulas
The BLS uses this data to calculate CPI using the following formula:
CPI = Cost of the Market Basket in a Given Year/Cost of the Market Basket in the Base Year.
The result is multiplied by 100 to express CPI as a percentage.
The BLS uses the period from 1982 to 1984 as its base year. It set the index level during this 36-month period at 100. If the CPI increases, say, to 110, that indicates that prices are 10% higher than the base year period. (This doesn’t mean inflation is at 10%, however; that’s a separate calculation.)
By seeing the change in prices over time, consumers and investors can better understand how their purchasing power has changed.
Annual CPI Calculation
Here’s a hypothetical example of the annual CPI calculation, comparing the base year to the current year:
| Sweatshirt | 1 dozen eggs | Movie ticket | |
|---|---|---|---|
| Price in the base year | $20 | $2.50 | $10 |
| Quantity | 2 | 6 | 5 |
| Total Cost | $40 | $15 | $50 |
When you total the price of these goods you get $105.
Now let’s consider the same basket of goods in a subsequent year:
| Sweatshirt | 1 dozen eggs | Movie ticket | |
|---|---|---|---|
| Current year | $22 | $3 | $15 |
| Quantity | 2 | 6 | 5 |
| Total Cost | $44 | $18 | $75 |
When you total the prices of these goods you get $131.
Using the CPI formula, you get $137 / $105 X 100 = 130
In this hypothetical calculation, the CPI for the current year is 30% higher than the base year.
Categories Within CPI
The CPI is based on what real people buy, collected from expenditure surveys and personal diaries. Approximately 20,000 consumers are surveyed annually, and the Bureau of Labor Services uses this data to create more than 200 categories of goods and services, clustered in the eight main groups defined above.
In addition to these categories, CPI includes government-charged user fees like water, sewage, tolls, and auto registration fees. It also factors in taxes associated with the price of goods such as sales tax and excise tax. However, it does not include Social Security taxes or income taxes that aren’t directly related to the purchasing of goods and services.
The CPI also does not include the purchase of investments, like stocks and bonds, which investors .
Types of CPI: CPI-U and CPI-W
The two main CPI indexes track the spending of two populations: CPI-U, which covers all urban consumers (about 90% of the U.S. population), and the CPI-W, which includes about 30% of the population, is a subset of CPI-U and represents a slightly different population.
• CPI-U is the more recent, expanded CPI number. It includes metropolitan and urban-area full-time wage earners and clerical workers; professional, managerial, and technical workers; the self-employed; short-term workers; the unemployed; retirees, and others not in the labor force. Not included in the CPI-U are those who live in rural, farm, or nonmetropolitan households, those in the military, in religious communities, and in prisons or mental health institutions.
• CPI-W refers to the original measure, which covers wage and clerical workers, and at least one worker in the household was employed for at least 37 weeks in the past 12 months.
Owing to budget cuts and changing priorities, the two populations are no longer surveyed separately. Rather, the CPI-W expenditures are weighted differently to reflect these generally middle- and lower-income households.
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The Consumer Price Index (CPI) in Practice
The CPI is the most common way to measure inflation, and this data has a significant impact on economic policy.
Usage in Economic Policy
The federal government, or the Federal Reserve, more specifically, sets a target inflation rate of 2% annually, and the CPI can help the government understand whether or not its monetary policy is effective in meeting this target.
In recent years, many people have kept a close eye on the CPI and CPI reports, after prices rose dramatically due to the pandemic in 2020. While there were a variety of reasons as to why prices increased, that bout of inflation — the first serious case of inflation since the 1980s — caught many people off guard, and strained consumers’ budgets.
The Federal Reserve’s Utilization
Though it has moderated in the years since, the cost of living and persistent inflation have remained a contentious issue in the U.S. for the last five years.
This ongoing inflationary period also led to the Fed increasing interest rates. Inflation, or the increase in the CPI over the past couple of years, peaked at more than 9% during the summer of 2022. Though inflation decreased, it hasn’t returned to the Fed’s target 2.0% level. As of Q4 2026, the CPI had risen to 3.7%.
The Federal Reserve may look at the CPI to gauge whether or not to raise interest rates, which may cool or heat up the economy, accordingly, by increasing the cost of borrowing. As borrowing costs go up, demand for goods or services tends to fall, lowering prices, and putting downward pressure on the CPI.
Implications for Other Government Agencies
Economists also use CPI as a measure of cost of living, the amount of money you need to cover basic expenses, such as housing, food, and health care. This is important because the government may make cost-of-living adjustments to programs such as Social Security. As the cost of living rises, benefit amounts may be adjusted higher to keep up with the rising costs of goods.
Employers may also look at the cost of living to help them set competitive salaries and determine when to raise wages for employees.
CPI’s Influence on Market Sectors
The CPI can also have an influence on market sectors, like the housing markets, financial markets, and even labor markets. As noted, a lot of it is top-down — depending on how the Federal Reserve reads the CPI and decides to change interest rates, if at all.
Raising rates can temper demand in the housing market, if mortgages become more expensive. It can also slow down sales for some businesses, which are reflected in earnings reports, and in the stock market. That can then spill into the labor market, and potentially raise unemployment as companies look to cut costs.
All told, the CPI’s influence can run deep in an economy, as this survey of investor portfolios indicates.
CPI Versus Other Economic Indicators
The CPI is only one of many economic indicators, as mentioned. Others include unemployment, and the Producer Price Index (PPI).
CPI vs. Unemployment: Understanding the Relationship
As noted, there tends to be a relationship between the CPI and unemployment rate, as the Fed targets 2% inflation, and full employment. As such, the Fed can decide to make changes to monetary policy to try and restore balance or at least get closer to its goals.
CPI vs. PPI (Producer Price Index)
The Producer Price Index or PPI measures the average change over time in the selling prices received by domestic producers of goods and services. In simpler terms, this metric measures wholesale prices for the sectors of the economy that produce goods. Like the CPI, the PPI can help analysts estimate inflation, as higher prices will show up on the wholesale level first before they get passed on to consumers at the retail level.
As key monthly economic indicators, the CPI and PPI may be viewed alongside each other. For example, while the CPI for September 2026 reflected a 3.7% increase over the previous year (not seasonally adjusted), the PPI showed a 6.3% rise over the same 12-month period. Both indicators signal a sharp increase in inflation, though these are not necessarily the only indicators economists may take into account to gauge broader trends.
Analyzing and Critiquing the CPI Methodology
The CPI is a useful measure in many ways, but it does have some limitations.
First, it doesn’t apply to all populations in the United States. CPI considers urban populations alone, so it is not necessarily representative of the costs for those who live outside of those areas.
Also, the CPI calculation does not take into account all of the goods and services available to consumers or new technologies not yet considered consumer staples. What’s more, the metric does not provide any contact into what’s causing prices to move up and down, such as social or environmental trends.
CPI’s Broader Impact and Usage
CPI reports are typically issued monthly by the BLS, and are available to anyone who wants to access them online. They give a broad breakdown of the previous month, and compare price changes year-over-year, and month-over-month.
Breaking Down the Monthly CPI Report
The standard CPI report has an introduction that discusses the changes over the previous month, followed by a table that outlines changes in specific price categories over the past year and several months. It further breaks down food, energy, and “all items less food and energy,” providing additional insight for each category.
Anticipating the Next CPI Report
The BLS publishes the date and time of the upcoming CPI report on its website (www.bls.gov/cpi). It’s typically announced during the second week of the month, at 8:30am ET on the given day. The monthly CPI report reflects the previous month’s data, and can be adjusted seasonally after the announcement.
How the CPI Impacts Your Investments
When the CPI goes up, and investors sense that the Fed will keep interest rates higher for longer to moderate inflation, this typically impacts borrowing costs and the cost of doing business overall. In other words, higher CPI and higher interest rates can put a damper on the stock market.
Conversely, when consumer prices drop, and monetary policy results in lower interest rates, that may boost stock prices.
When it comes to bonds and the bond market, a higher CPI index can result in higher Treasury yields. While some investors may see higher bond rates as a boon, especially if stocks are volatile, bond prices tend to drop when rates rise—which has a negative impact on some bond investors.
Educational Resources for the CPI
There are numerous resources and places to learn more about the CPI, especially after all the attention it has garnered in recent years.
Learning More About Inflation
A simple internet search will net a cornucopia of results, loaded with information and insight into the CPI. You’re also likely to find opinion pieces and other media discussing the CPI’s shortcomings or strengths — it can be a good idea to consider everything, and formulate your own opinion.
But in terms of learning more about the CPI itself, the BLS publishes a handbook discussing the concepts and methods it uses, which can also be helpful if you’re hoping to bolster your CPI IQ.
Where to Find CPI Statistics
The BLS publishes the CPI, and a whole host of data and statistics related to it. With that in mind, it can be a great place to start when hunting down CPI-related data. There are multiple other sources that utilize the BLS’ data to compile charts, graphs, and more, but typically, it’s all sourced back to the BLS.
The Takeaway
Rising inflation decreases the value of individuals’ cash savings over time. Investing in stocks, bonds and other investments that offer inflation-beating returns may help consumers protect the value of their savings. Understanding CPI, and how it’s moving, can help you devise a strategy for your investment portfolio.
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FAQ
How often is the CPI reported?
The CPI is calculated by the Bureau of Labor Statistics (BLS), a government agency, and is reported monthly ,for the previous month, usually during the second week of each month.
What is the difference between core CPI and headline CPI?
Headline CPI tracks the changes in prices for a basket of goods and services, including food and energy costs; it tends to reflect the day-to-day cost of living. Core CPI excludes the more volatile prices of food and energy, so economists use this number to gauge whether inflation is showing up across the economy.
How does the CPI affect interest rates?
The Fed uses the CPI to see which direction consumer prices are moving. If the CPI keeps going up, signaling inflation, that may spur an interest rate hike to help moderate inflation.
How does the CPI affect my cost of living?
The CPI itself is a backward-looking measure, and doesn’t directly impact a household’s cost of living. Rather, the CPI is meant to reflect what the cost of living is now, and how it has changed over a given period of time.
Can the CPI predict a recession?
No, the CPI is not a predictive measure. But it’s an important indicator of the country’s economic health. And because the CPI can influence monetary policy, this data may be used by economists when evaluating the potential for a downturn.
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