What Is the Consumer Price Index (CPI)?

Updated March 14, 2023, 7:13 a.m., to add most recent CPI figures.

The consumer price index measures the change in average price paid by consumers for a set of goods and services that represent regular expenses, like groceries or gas. The CPI is used to track the real-world impacts of inflation on consumers. Every month, the U.S. Bureau of Labor Statistics releases the updated CPI data, showing monthly and annual changes in average prices.

The most recent CPI report showed the index increased 0.4% from January to February. Shelter, which includes rent and hotel lodging, accounted for over 70% of the monthly increase. Over the previous 12 months ending in December, the index rose 6.0% — the smallest year-over-year increase since the 12-month period ending September 2021. Core CPI — that is, all items less food and energy — rose 5.5% over the last 12 months, its smallest 12-month increase since December 2021. ^[0]

Typically, Americans can expect the CPI to increase between about 1% and 4% each year, based on data from the last couple of decades. But there are sometimes periods of high inflation, indicating average prices for common goods and services are rising more than usual.

During the pandemic, the annual inflation rate stayed below 4% until April 2021. That month, the CPI increased 4.2% over the previous year and continued to rise until it appeared to peak in June 2022, when the year-over-year increase was reported at 9.1%.

How is CPI calculated?

There’s a lot going on behind the monthly CPI report. The BLS collects price data each month in 75 different urban areas. The bureau gathers information from about 6,000 housing units and 22,000 retail businesses, including grocery stores, department stores and gas stations, among others.

The BLS groups goods and services into categories. Typically, you’ll see the index reported for all items. But it's also common to see the CPI 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.” 

Using the collected data, the CPI is calculated with complex statistics. You’ll most commonly see it referred to by the rate of change during a specific time period. The CPI rate is calculated by determining the current value of a particular basket of goods and services, then dividing it by the value of those same goods and services from a year or month prior. The result is then multiplied by 100.

Everything included in the index is mathematically weighted so that each item or group’s effect on the index reflects its relative importance to consumers. The table below shows the relative importance assigned to some categories in the most recent CPI report.

Source: Bureau of Labor Statistics ^[0]

How is CPI used?

The CPI is closely watched as an economic indicator to measure inflation. But that’s not its only purpose.

Private employers may use the CPI to determine how much to pay workers. The federal government also uses the index to reset eligibility levels for government assistance programs, federal tax brackets and cost-of-living increases^[0]

Additionally, anyone can use the index to calculate buying power by adjusting historical values to see how they stack up in today’s dollars. For example, in 1972, median household income was $11,120, according to the U.S. Census Bureau. Factoring in inflation, that income had the same buying power as $80,630 in today’s dollars, according to the CPI inflation calculator on the BLS website.

Next CPI report