Does CPI Tell You What You Need to Know About Inflation?
Not all inflation rate statistics tell the same story.
Question: I've been seeing signs of inflation, especially at the grocery store, but the CPI figures quoted in the media seem to indicate inflation is pretty tame. What goes into CPI, and how effectively does it capture inflation?
Answer: It's no wonder that inflation has been a hot topic lately. While the Consumer Price Index numbers have been nearly flat month-to-month, the quickly rising prices of common goods and services suggest that things are not as rosy as common CPI figures would suggest. So is CPI an accurate reflection of changes in the cost of living? To make that assessment, it's worthwhile to understand what goes into the CPI calculation as well as some important caveats that go along with this commonly cited inflationary measure.
The Basics of 'Headline CPI'
The Bureau of Labor Statistics publishes myriad statistics on inflation, but the most widely reported measure of inflation is the All Items Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average, often referred to in shorthand as CPI. It's based on the actual expenditures of about 14,500 families living in urban areas covering about 87% of the total U.S. population and captures the rate at which a basket of approximately 80,000 goods and services has risen or fallen month to month.