CPI

The Consumer Price Index (CPI) is a monthly Bureau of Labor Statistics measure of the average change over time in the prices paid by consumers for a representative basket of goods and services.

What the CPI measures and who it covers

The Bureau of Labor Statistics publishes two main versions of the index. According to the BLS CPI questions and answers, the CPI-U (All Urban Consumers) population constitutes over 90 percent of the U.S. population, while the CPI-W (Urban Wage Earners and Clerical Workers) is a subset representing about 30 percent. Rural residents and farm households fall outside the coverage. National indexes are published monthly for the CPI-U, CPI-W and Chained CPI-U, and many metropolitan areas every other month. Most CPI series use a 1982-84 = 100 reference base, meaning the average price level across those 36 months is set to 100, so a reading of 110 indicates prices 10 percent above that base. A separate "all items less food and energy" index, called core CPI, strips out the two most volatile categories to show underlying inflation.

Hypothetical example: a CPI-U of 320.0 one September and 329.6 the next gives twelve-month inflation of 3.0%, and 329.6 means prices are about 3.3 times their 1982-84 average. See inflation and the inflation calculator.

Why markets react to CPI releases

CPI is the most widely quoted U.S. inflation statistic, so a monthly release that lands above or below expectations can move Treasury yields, the dollar and equity indexes within minutes. The Federal Reserve's stated longer-run goal is 2 percent inflation measured by the PCE price index, not CPI, but CPI arrives earlier in the month and feeds directly into PCE estimates, so traders treat it as the first read on where policy may head. Bond investors focus on the core figure and on the month-over-month change, since a single hot month in energy can distort the twelve-month rate without changing the trend. CPI also has direct cash consequences: it adjusts Social Security payments, the principal of Treasury Inflation-Protected Securities and many wage contracts, so the print affects household income as well as asset prices.

Hypothetical example: consensus expects a 0.2% monthly core increase and the release shows 0.4%. Expectations for the federal funds rate shift and Treasury yields rise. Compare CPI with PCE.