How is inflation measured with the Consumer Price Index?

What does the CPI actually measure?#

The Consumer Price Index (CPI) is one of the most widely cited inflation measures in the United States. The Bureau of Labor Statistics (BLS) defines it as a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services^[1]. Inflation is simply a general rise in prices; the CPI is one way to put a number on it.

The main version, called CPI-U, covers households in all areas of the United States and represents over 90 percent of the U.S. population^[2]. A narrower version, CPI-W, is a subset of that group and represents about 30 percent of the population^[2]. In this note, "CPI" means CPI-U unless stated otherwise.

The CPI is about day-to-day spending. BLS says it does not include investment items such as stocks, bonds, real estate and life insurance, because they relate to savings rather than consumption^[2]. It does include sales and excise taxes tied to the prices of specific goods^[2].

Where do the prices come from?#

The numbers come from real price checks, not surveys of opinion. BLS records the prices of about 80,000 items each month, a scientifically selected sample of what consumers pay^[2]. Its data collectors visit or call thousands of stores, service businesses, rental units and doctors' offices — in person, on the web or through apps^[2].

Those prices are sorted into more than 200 categories, arranged into eight major groups: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services^[2]. The BLS Handbook of Methods adds that the current design produces 7,776 basic indexes — 32 index areas times 243 item strata — that are combined into the national figure^[3].

How are thousands of prices turned into one number?#

Not every price counts equally. BLS averages price changes using weights that represent each item's importance in the spending of the population covered^[3]. The weights come from detailed information that families and individuals provide about what they actually bought^[2]. Beginning with January 2023 indexes, BLS updates these spending weights every year, using spending from two years earlier^[4].

The table explains why some prices matter much more than others for the headline number. With December 2025 weights, a 10% jump in apparel prices adds about 0.24 percentage point to the all-items change, while a 3% rise in shelter costs adds about 1.07 points, because households spend far more on shelter (figures computed in code). BLS calls each item's weight its relative importance: its spending weight as a percentage of all items^[4].

How do you read a CPI index level?#

The CPI is published as an index, not a price. Most CPI series use a 1982-84=100 reference base: BLS sets the average price level of 1982, 1983 and 1984 equal to 100 and measures later prices against it^[2]. An index of 110 means prices are 10 percent higher than in the reference period^[2].

1. 1

   Take two index values

   For example, an index of 300.000 a year ago and 310.200 now (illustrative values).

2. 2

   Find the change in index points

   310.200 − 300.000 = 10.200 points. Points alone tell you little, because they depend on the starting level.

3. 3

   Divide by the starting value

   10.200 ÷ 300.000 = 0.034.

4. 4

   Multiply by 100

   The result, 3.40%, is the inflation rate over that period. The same steps work for any two index values.

You will also see two versions of the same month. Seasonally adjusted figures remove effects that happen at about the same time and size every year^[2], which makes month-to-month changes easier to compare. In BLS releases the 12-month change is reported before seasonal adjustment. In the August 2026 release, for example, the CPI-U rose 0.4 percent for the month on a seasonally adjusted basis and 3.4 percent over 12 months before seasonal adjustment^[6]. The index excluding food and energy rose 2.4 percent over the year^[6].

How is CPI different from the PCE index the Fed uses?#

The Federal Reserve states its 2 percent inflation goal in terms of the price index for personal consumption expenditures (PCE)^[7]. The PCE index comes from a different agency, the Bureau of Economic Analysis, which describes it as a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services^[8].

The two indexes come from different agencies and cover different populations, so they are not interchangeable — even though both showed 3.4% for August 2026. For a beginner, the practical rule is to note which index a headline uses before comparing it with the Fed's target. Our note on how the Federal Reserve sets interest rates explains what the Fed does with these numbers.

What does the CPI not tell you about your own costs?#

BLS itself cautions that the CPI is frequently called a cost-of-living index but differs in important ways from a complete cost-of-living measure^[2]. It tracks the average basket of a large population. Your basket may look different: a renter who drives a lot and a homeowner who works from home do not face the same price changes.

That is why the CPI is best used as a yardstick. It tells you roughly how fast general prices are rising, which matters for comparing savings rates and investment returns. Our guide to how inflation affects your money shows how to turn a nominal return into a real one, and the real return calculator does the arithmetic for you.

What mistakes do beginners make?#

1. Reading index points as percent

   A rise from 300 to 310 is 10 points but about 3.3%. Always divide the change by the starting index before comparing periods.

2. Mixing up monthly and yearly rates

   A 0.4% monthly change and a 3.4% yearly change can appear in the same release. Check which period a headline describes before drawing conclusions.

3. Comparing CPI with the Fed's 2% target as if they were the same index

   The Fed's goal is defined with the PCE price index. CPI and PCE can differ, so compare like with like.

4. Assuming the CPI is your personal inflation rate

   It is an average for a large population. Your own costs can rise faster or slower depending on where you live and what you buy.