The Consumer Price Index (CPI for short) measures the increase (or decrease) in prices experienced by consumers in their day-to-day lives. The index measures the cost of everything from everyday groceries to airline tickets to even the average cost of taxes on utilities on your water bill. According to the latest government data, the CPI increased at its fastest rate in 30 years. And inflation has seen five straight months over 5%.
What’s the consumer price index?
The Bureau of Labor Statistics (BLS) collects the data and releases a report in the middle of every month, which details the change in prices from the month before (kind of like the jobs report that we’re always talking about). That change in prices reflects the overall change in spending power that the average American household will experience from month to month.
The current increase in CPI is largely to blame on the pandemic and its effects, including shortages. According to the latest report, it has increased at the fastest annual pace since 1990. We have recently seen much higher costs for new and used cars, energy, furniture, rent and medical care.
Breaking down the report
The BLS pulls data from all over the United States before releasing two different CPI figures. One of these figures represents the spending patterns for all urban consumers (CPI-U) while the other represents the average spending patterns for all urban wage earners and clerical workers (CPI-W).
To put it simply, the first number (CPI-U) factors in people who are unemployed, retired, self-employed and regular professionals. The second number (CPI-W) only tracks the spending patterns of CPI-U households that meet specific employment criteria. “More than one-half of the household’s income must come from clerical or wage occupations, and at least one of the household’s earners must have been employed for at least 37 weeks during the previous 12 months,” according to BLS. The CPI-W population represents roughly 29% of the total U.S. population. The CPI-U is generally used as the “official CPI” when you hear about it in the news.
Thanks to the specific demographics represented in the study, the CPI may not accurately reflect the spending habits of certain subsets of the population, such as retirees, the poor, or people who live in rural areas.
Why Should I Care?
The CPI is a useful way to understand the impact of inflation on everyday Americans. As with a lot of complex economic ideas, it’s easy to lose sight of why numbers might be important to the everyday person. It’s directly calculated from the prices that consumers are paying for items every day (Seriously. The BLS pays thousands of data collectors to record the prices of items across the country each month).
For now, the WSJ reports that economists expect inflation to continue an upward trend in the next year. If you want to draw your own conclusions from the data, you can find the BLS’s original report on their website.
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