7.8: Consumer Price Index- Introduction

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Martin Medeiros
Chabot College

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Due to the profound effects inflation can have on an economy, the CPI is one of the most closely watched economic indicators. Financial and consumer market participants anxiously await the CPI because it drives a lot of activity in the marketplace. However, some analysts rely on other indicators to monitor inflation; they feel that the CPI is lacking in certain areas and misstates the economy's inflation rate. In the remainder of this unit, we will examine the details behind the CPI report and the pros and cons of using it to monitor price changes in the United States.

The CPI is a monthly indicator published by the Bureau of Labor Statistics (BLS) that tracks changes in the prices paid by urban consumers for a representative basket of goods and services.

Any attempt to track this largest component of GDP is a daunting task, because there is a considerable amount of data to sort through. The consumer sector, in 2024, totaled $20.4 trillion, is roughly 70 percent of total economic activity.

Price indexes are available for the United States as a whole, the four census regions, and for twenty-six local areas.

Figure 6

They are available by average for a city of a certain population, and for cross-classifications of regions and size categories. There are indexes that track major groups of consumer expenditures, specific items within each group, and even special categories, such as services.

Monthly price indexes are available for the United States as a whole, the four census regions, and some local areas. The indexes available for the United States show more detail by item than the regional and local indexes do.

Indexes are available for two population groups: a CPI for All Urban Consumers (CPI-U), which covers approximately 87 percent of the total population, and a CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers 32 percent of the population and is a subset of CPI-U.

Prices for the goods and services used to calculate the CPI are collected in 87 urban areas throughout the country and from about 23,000 retail and service establishments. Data on housing-related spending (rents) is collected from about 50,000 landlords and tenants.

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