University of Wisconsin–Madison

What is the consumer price index and how is it used?

The Consumer Price Index (CPI) is a measure of the average change over time in the price paid by urban households for a set of typical goods and services that people buy and consume, such as food, housing, and medical care.

The U.S. Department of Labor, Bureau of Labor Statistics, produces the CPI to represent a statistical estimate of inflation, which is a general increase in prices and decrease in the purchasing value of money.

  • Whose buying habits are represented by the CPI?

    The CPI reflects the buying habits for each of two population groups: residents of urban or metropolitan areas, including professionals and self-employed, unemployed, poor, and retired persons (CPI-U); and urban wage earners and clerical workers (CPI-W).

    The all-urban group represents about 89 percent of the U.S. population. The CPI-W’s population represents about 28 percent of the total U.S. population, and is part of the CPI-U.

    The price-change experience of the all-urban consumer group is measured by the traditional Consumer Price Index for All Urban Consumers (CPI-U) and the newer Chained Consumer Price Index for All Urban Consumers (C-CPI-U). Of the two, the C-CPI-U more closely represents a cost-of-living index because it adjusts for consumers’ substitutions among expenditure items in reaction to relative price changes.

    The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the expenditures of households included in the CPI-U definition that get more than half their income from clerical work and that have at least one earner who has been employed at least 37 weeks during the previous 12 months.

  • How is the CPI used?

    The CPI is used as an economic gauge; a deflator of other economic series; and to adjust dollar values. Specific examples of CPI uses include the following:

    • Relevant to the topic of poverty, the Census Bureau uses the CPI to adjust the official poverty threshold, or minimum income needed to avoid being poor, for inflation each year.
    • Employers of the over 2 million workers who are covered by collective bargaining agreements that tie wages to the CPI use the index to adjust their wages.
    • The Social Security Administration uses the CPI-W to annually adjust benefits paid to Social Security beneficiaries and Supplemental Security Income (SSI) recipients.
  • Are there any consumer-related factors the CPI does not cover?

    While sometimes referred to as a cost-of-living index, the CPI differs in important ways from a complete index because it does not take into account changes in other factors that affect consumer well-being and are difficult to quantify, such as safety, health, water quality, and crime.

  • Recent Changes to the CPI

    The BLS introduced a new estimation system for the Consumer Price Index in February 2015, the first major improvement in more than 25 years. The new system has enhanced flexibility and review capabilities. As part of the redesign process, a few minor changes in methodology were introduced, most of which affect the imputation of price changes.

  • Where can I learn more about the CPI and find related statistics?

    See the Bureau of Labor Statistics’ website for detailed information about the CPI, how its various measures are calculated, and to obtain CPI statistics.