How Is Inflation Measured?
There are three indexes that measure the inflation rate: CPI, PCE and PPI.

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Current inflation readings
CPI for May
The consumer price index, or CPI, increased 0.1% in May, according to the most recent report. The year-over-year increase was 2.4% and the core CPI price index was 2.8%.
PCE for April
Price increases have largely stabilized compared to recent years, according to the latest personal consumption expenditures price index, a Bureau of Economic Analysis report released on May 30.
PCE price index: 2.1%.
Core PCE price index: 2.5% — just 0.5 percentage points higher than the Federal Reserve’s target rate.
Real PCE (total consumer spending adjusted for inflation): 0.1 percentage point increase between March and April.
PPI for April
The PPI increased 0.1% between April and May, according to the most recent data from the U.S. Bureau of Labor Statistics released on June 12. The index rose 2.6% year over year.
Inflation is the rate that prices increase over time. Inflation explains why the same amount of money you paid for something in the past cost more today. It explains why something that cost you $100 in 2000 would cost about $187 in 2025.
» MORE: Run the numbers with NerdWallet’s inflation calculator.
There are three separate reports released monthly by individual government sources. Each index groups and tracks different buckets of goods and services to measure how much prices have changed. Each index is used as a proxy for inflation:
Consumer price index (CPI)
Personal Consumption Expenditure (PCE) price index
Producer price index (PPI)
The CPI and the PPI are released each month by the U.S. Bureau of Labor Statistics (BLS), while the PCE is released by the Bureau of Economic Analysis (BEA). Typically, you’ll see the inflation rate reported for all items included in the reports. But it's also common to see it reported without energy or food price changes, because those categories tend to be more volatile. This version of the index is known as “core inflation.”
The CPI is the most commonly used inflation proxy, so if someone says the inflation rate is 2.4% — the rate for May — they’re probably referring to the CPI.
However, the PCE — specifically the core PCE — is the preferred inflation measure used by the Federal Reserve Open Market Committee (FOMC) to make decisions on interest rates.
Why inflation measures matter
The CPI, PCE and PPI are indicators of how the U.S. economy is doing. Monetary policymakers consider a low, stable inflation rate to be the mark of a healthy economy. The Federal Reserve targets a 2% annual inflation rate because it encourages businesses and consumers to continue spending, saving, borrowing and investing.
When prices rise sharply, it can mean that the economy is overheated, with too much demand for or too little supply of goods and services.
And of course, higher consumer prices — whether on everyday necessities like eggs or big ticket items like cars — put a strain on household budgets, especially if salaries aren’t keeping pace with inflation.
What a NerdWallet expert says
Elizabeth Renter, economist at NerdWallet, says "Price growth will be goosed by tariffs, full stop. But the magnitude and persistence of this increase remains to be seen."
Renter says that a big concern for households may be a lack of financial preparedness. Here's her advice:
"Whether prices are rising dramatically or your hours are cut at work (or both), having available credit and an emergency fund can help you weather the storm. With pandemic savings spent down and debt levels rising, however, consumers may find limited options if economic factors impact their households specifically."
What you can do next
• Calculate how much you need in your emergency fund
• Find out best practices to prepare for a recession
• Explore more about the state of the economy
What is the CPI?
The consumer price index, or CPI, measures the change in average prices paid by consumers for a set of goods and services that represent regular expenses, like groceries or gas. The CPI is calculated by the U.S. Bureau of Labor Statistics and is used as a proxy for inflation. Every month, the BLS releases updated CPI data, showing monthly and annual changes in average prices.
May CPI report
The CPI increased 0.1% month-over-month in May after increasing 0.2% in April. Over the past 12 months, the CPI increased 2.4% (up from 2.3% in March).
Core CPI — a measure that excludes food and energy prices because of their volatility — rose 0.2% over the past month and 2.8% over the past 12 months.
A 2.6% decline in gas prices helped offset increases in other indexes in May, including those for food and rent. See below for a look at the CPI’s key indexes.
The latest CPI report shows prices increased month-over-month for household furnishings and operations, medical care, motor vehicle insurance, education and personal care.
Prices went down in some areas, as well. In addition to gas, airline fares, used cars and trucks, new vehicles and apparel were among the goods and services that got a little cheaper last month.
What is the PCE?
The personal consumption expenditures price index, or PCE, measures changes in consumer spending on typical goods and services. It’s used to calculate inflation (or deflation) in the U.S. economy.
Updated each month by the Bureau of Economic Analysis (BEA), the PCE tracks what kinds of goods and services consumers buy and how much they pay for them, as well as how consumers change their spending habits when prices rise or fall.
For example, if rising gas prices lead consumers to drive less and cut down on fuel spending, the PCE will reflect that change in purchase frequency.
What’s the core PCE and why does it matter so much?
Core PCE is the Federal Reserve's preferred measure of inflation. Core PCE excludes food and fuel — two categories that frequently experience price swings. Increases in both PCE and core PCE can signal an increase in inflation; decreases may signal a decline in inflation. These results could also indicate that inflation is still growing, but at a cooler pace.
The Fed’s target for inflation is 2% on an annual basis.
Core PCE increased less than 0.1% from March to April.
Core PCE rose 2.5% over the past year compared to a 2.9% increase from April 2023 to April 2024.
What did people spend money on in April?
Current-dollar PCE — the total consumer spent on goods without inflation adjustments — went up by $47.8 billion in April. That amount reflects a $55.8 billion increase in spending on services, offset by $8 billion in spending on goods.
Personal income rose and savings declined in April
Personal income increased by 0.8% in April. It was largely driven by higher wages and government benefits. The benefits increase reflect enhanced Social Security payments as part of the Social Security Fairness Act.
Disposable income (after-tax) increased by 0.8% in April.
Personal savings rate — the amount people save from their disposable income — went down by 0.8%.
What is the PPI?
The PPI tracks the prices that producers and manufacturers receive for their goods from retailers and distributors. The PPI rises when producers and manufacturers charge higher prices for their products, likely to offset the rising costs of raw material or distribution.
In this way, PPI functions as another measure of inflation, similar to the consumer price index and personal consumption expenditures price index, which track the prices consumers pay for goods and services. But unlike those two indexes, the PPI shows how prices are changing for retailers who are buying at the wholesale level.
“In general, the PPI is about the price change from the perspective of the seller,” says Thomas McDonald, a senior economist at the BLS. That makes the PPI a leading indicator of inflation since higher prices on the producers’ end often lead to increased prices for consumers.
May PPI report
Overall, the index increased by 0.1% in May. Compared to a year ago, the index increased 2.4%.
Here are highlights from the latest PPI report:
Core PPI, which excludes food, energy and trade services, ticked up by 0.1% in May. It rose 2.7% compared to a year ago.
Final demand goods prices rose 0.2% in May after increasing 0.1% in April.
Final demand services prices increased 0.1% in May.
(Photo by Spencer Platt/Getty Images)