Inflation and Prices

Inflation, as measured by the Consumer Price Index (CPI), reflects the annual percentage change in the cost to an average consumer of acquiring a standard market basket of goods and services. That is, inflation is not focused on a single product or sector, but rather measures the change in total expenditures a consumer faces to purchase essentially the same goods and services each month. The inflation rate is most often stated as an annual rate, for example, the inflation rate for April is the percent change in the CPI between April this year and April a year ago.  The CPI is calculated by the Bureau of Labor Statistics. There are however, several “flavors” of CPI. The “inflation rate” we present here first is the standard rate most frequently cited in the news media. It is the year-over-year percent change in the Consumer Price Index for All Urban Consumers: All Items, U.S. City Average which is a measure of the average monthly change in the overall price for goods and services paid by urban consumers.  Urban consumers include roughly 88 percent of the total population, accounting for wage earners, clerical workers, technical workers, self-employed, short-term workers, unemployed, retirees, and those not in the labor force. 

Use your cursor as a tooltip to switch series ON/OFF at the bottom of the chart. Run your cursor over the chart to view values.

Use your cursor to switch on “Core” in the chart above  to view the “core inflation rate” which is calculated according to the definition above, but excludes the volatile food and energy sectors from the consumer’s market basket. By reducing volatility, it is meant to provide a clearer picture of the underlying inflationary forces in the economy. Next, the “trimmed PCE inflation rate” calculated by the  Federal Reserve Bank of Dallas  using data from the Bureau of Economic Analysis also attempts to reduce volatility and is a standard alternative to the core inflation rate. PCE stands for personal consumption expenditures and uses a different methodology. The formula used to compute the CPI is primarily based on data collected by the Consumer Expenditure Survey, while the PCE is based primarily on business surveys such as the Monthly Retail Trade Survey and the Quarterly Services Survey. The BLS provides a detailed comparison between the CPI and the PCE.

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Want to learn more about the CPI and how it is compiled and used? Check out these great FAQs from the BLS!

Consumer Price Index Frequently Asked Questions