Consumer Price Index (CPI): What It Is and How It’s Used

The CPI is a widely used measure of inflation and deflation. It is calculated by the BLS using a unique methodology that includes price samples and index weightings. Unlike the PPI, which focuses on price changes, the CPI reflects the monthly price change paid by U.S. consumers based on their total spending.

The Consumer Price Index (CPI) is a popular tool for tracking changes in consumer prices. It’s widely used by policymakers, financial markets, businesses, and consumers alike. This index covers a whopping 93% of the U.S. population, making it highly representative. Additionally, there’s a separate index that focuses on wage earners and clerical workers, which helps determine cost-of-living adjustments for federal benefits. To compile the CPI, around 80,000 price quotes are collected each month from approximately 23,000 retail and service establishments, along with data from 50,000 rental housing units.

The Bureau of Labor Statistics (BLS) gathers around 80,000 prices every month from about 23,000 retail and service establishments. Even though both CPI indexes have the word “urban” in them, the more comprehensive and widely referenced index covers 93% of the U.S. population.
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When it comes to the Shelter category, which makes up a third of the overall CPI, the prices are determined by surveying rental prices for 50,000 housing units. This information is then used to calculate the increase in rental prices and the owners’ equivalents.
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The U.S. Bureau of Labor Statistics has a publication called “Measuring Price Change in the CPI: Rent and Rental Equivalence” that provides insights into how rental prices and owners’ equivalents are measured.
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The owners’ equivalent category is used to estimate the rental equivalent for owner-occupied housing, ensuring that housing costs are accurately represented in consumer spending. The CPI includes user fees and sales or excise taxes, but it does not take into account income taxes or the prices of investments like stocks, bonds, or life insurance policies.
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