We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is the CPI?

By Brendan McGuigan
Updated: May 17, 2024
Views: 24,298
References
Share

The CPI is the Consumer Price Index, a measurement of prices for a range of consumer products. It is calculated in urban areas and provides a fairly good look at how much inflation has occurred in the country. This type of index is widely used and similar in most ways to a cost of living index.

A CPI can utilize either a base year or a chained system. Using a base year system, it takes a breakdown of spending areas from a specific year and weights each accordingly for subsequent years. As an example, if in 1992 the breakdown of spending was 15% food, 10% recreation, 25% housing, 5% apparel, 15% transportation, 10% medical care, 5% education and 15% other, then these same weightings would be used in all subsequent years, whether or not the actual distribution was the same. A chained system takes a new measure of weighting each year for each index. The index as released by the US Bureau of Labor Statistics includes both the traditional CPI for all Urban Consumers (CPI-U) and a Chained CPI for all Urban Consumers (C-CPI-U).

The CPI represents the majority of the US population, as it measures all urban consumers and their spending habits. This sector comprises 87% of Americans. In addition to the measurement of urban consumers, it also measures of a subset of this group. The CPI-W measures only those consumers who have half of their household income coming from wage or clerical occupations, and who have been employed for at least thirty-seven weeks during the previous year. This group comprises 32% of Americans.

The CPI's market basket is made up of over 200 categories in eight general groups: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. In addition to goods and services purchased through the consumer market, government-issued charges such as water fees, vehicle tolls, and registration fees are also included.

Each month, the Bureau of Labor Statistics conducts a survey of thousands of stores, rentals, doctors, and other service and goods providers. They track the prices of the goods and services reported by a sample group as being their top expenditures and collate this data into the CPI.

While there are many different methods of tracking inflation, all with their own benefits, the CPI has proven itself to be an ideal inflation marker for consumer purposes. By using it, the government can best determine how to adjust payments to consumers to help them meet their material needs.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources

Editors' Picks

Discussion Comments
By anon38893 — On Jul 29, 2009

Interprting the general Inflation rate of the county and CPI

By uniquefit — On Jan 28, 2008

can the landlord of a mini mall increase your rent based on the cpi. cpi reads as follows: housing rent of primary residence owners equivalent rent, fuel oil, bedroom furniture.

Share
https://www.wisegeek.net/what-is-cpi.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.