Inflation and deflation are realities in the Western economy. In the US, there’s a very particular way of measuring people’s spending on everyday items, groceries, resources, and services. It’s called the Consumer Price Index, or the CPI, and it’s a tool that helps the government and economists track how prices change within the American market in the short—and long-term.
If you’re like me, economics can get a little confusing! However, the CPI is in place to ensure there’s always accountability for why US citizens pay what they’re asked to. In this fact file, I’ll take you through the basics and some interesting tidbits about why the CPI is so important, and how we can use it to track prices for months and even years to come.
Whether you’re a US citizen or simply do business in the States, here are some interesting facts about CPI in the US to help clue you in.
1. The US markets use the CPI to keep track of fluctuations.
Have you ever wondered why some things change price tags so often? Naturally, there are all kinds of socioeconomic factors that can affect what US citizens pay from day to day. However, economists use the CPI based on select products and services to measure changes in pricing over specific periods.
To do this, they use a “basket” system which measures select commodities and items that many average US citizens purchase. It’s similar to how the UK measures its inflation in this regard!
2. The CPI considers tens of thousands of price quotes.
The CPI is regarded as perhaps the most thorough pricing index of its kinds, taking into account a staggering 80,000 different price points from products and services every single month! For comparison, the UK measures around 700 items in its own basket, but remember, it is a much smaller country!
It’s thought the CPI pulls its tens of thousands of price points from around 23,000 service providers and retail establishments, but that it also works with tens of thousands of rental housing spaces to ensure there’s a clear average on what people spend on living standards.
3. The CPI operates based on a system of surveys.
Traditionally, the US economy has built the CPI based on several careful surveys, taking into account specific purchases that the “average American” is likely to make from one day to the next.
For example, some people might receive Consumer Expenditure Surveys, or CES surveys, that ask thousands of families to reveal their spending habits over the past quarter-year. There’s also a housing survey used to uncover average rent costs in the US, and even a point-of-purchase survey, traditionally conducted via telephone, known as TPOPS.
4. TPOPS helps the economy track where goods are bought.
The TPOPS survey model within the CPI is a little different from the others, because instead of asking for information regarding pricing, surveyors using this model instead ask takers to confirm where they bought certain products from.
That, therefore, helps the Bureau of Labor Statistics (BLS) ascertain a complete list of stores, entertainment venues, malls, and ecommerce sites from which people mostly buy their daily goods and invest in services.
5. There’s also a CSPS.
The CSPS, or Commodities and Services Pricing Survey, is one of the most important activities the BLS conducts to build the CPI. This survey directly contacts stores and establishments to find out how much people pay for the products they consume the most on average.
As you might have worked out, the CSPS works on data built by the TPOPS! That means the BLS asks the US public to confirm where it shops the most, then the Bureau contacts said stores and establishments for firm data on how much they charge for such items and services.
This is all in the name of building as accurate a picture as possible of the changes in pricing expected from the US public, and to help track which items and services are increasing more than others over time. It’s all about helping to keep the economy balanced!
6. There are two main CPIs, but one covers the majority of the country.
The BLS tends to use two main CPI models to ensure it builds as clear and as accurate a model as possible of the prices people pay for everyday goods and services. However, it’s estimated that the main CPI model, which covers the majority of purchasing behavior across the US, accounts for as much as 93% of the entire population!
The two CPI models or types that are set by the BLS are the CPI for All Urban Consumers, otherwise known as the CPI-U, and the CPI for Urban Wage Earners and Clerical Workers, or CPI-W.
7. The CPI-W accounts mainly for clerical and hourly work.
It’s the CPI-U model that accounts for 93% of the population – however, the BLS uses the CPI-W to measure a large chunk of the country, thought to account for around 29%.
This 29% of households within the US typically earn money from hourly salaried jobs. The larger CPI model, meanwhile, simply stipulates that it measures people who don’t live in rural or completely remote locations.
Interestingly, however, both models use the word “urban” – just to confuse matters even further!
8. The BLS calculates the CPI based on two main formulas.
The main annual formula the BLS uses to calculate yearly fluctuations in the US CPI revolves around the value of the basket in the present year divided by the value of the basket from the year before – then, multiplying by ten.
The BLS will then work out the average inflation expected from the US by deducting the previous year’s CPI from the current CPI, then dividing that by the previous CPI, and multiplying by 100.
This gives the Bureau a reliable figure to provide publicly so economists (and everyday people) know how much costs are rising across the US. This is all based on averages, of course, but it’s the most accurate way to track the cost of living over time!
9. The US tracks inflation over several different periods.
Typically, the BLS tracks inflation over the course of a year as a clear, flat benchmark. However, it also measures inflation over select periods of time (say, from one month to the next). Regardless, these figures can help the US plan ahead in terms of economic change.
Inflation measured by the BLS is usually available in the form of a general percentage, and this can change from one year to the next based on several factors.
10. CPI data is released regularly.
Although the BLS works out inflation on a yearly basis for the most part, data forming the CPI is actually made public around the third week of every month. This data’s made available at multiple levels, such as the regional, national, and metropolitan.
There are also three monthly CPI reports released based on specific metropolitan areas – these are Chicago, Los Angeles, and NYC. However, other metropolitan areas receive regular updates and reports around a similar timeframe.
11. The CPI can be used to help track government policy power.
It can be difficult to measure the effectiveness of government policy without data – and the CPI provides just that! Many economists use the CPI to judge how effective current White House economic policies have been for the past year. Of course, it’s mostly used to help measure inflation and track where prices are heading over time.
Depending on the results of CPI surveys, US policymakers can come under pressure to make big changes. For example, if the cost of living increases dramatically, government agents will come under pressure to help make everyday purchasing more affordable for the average family. That’s not always easy to do!
12. Businesses and agencies use the CPI to help inform their financial decisions for the year ahead.
In a fluctuating economy, it can be difficult for US businesses and agencies to keep track of spending and income. Therefore, many use the CPI as a careful measure to ensure they’re making the best possible decisions.
For example, a business might change its investment strategy as a result of big changes in consumer spending habits, or might even change the cost of certain products and services as a result of CPI data. Therefore, the release of CPI data is incredibly important for small and large businesses alike across America.
13. The CPI’s basket is based around several key purchase groups.
It’s easy to assume that the BLS’ basket-building measures are somewhat random – that really isn’t the case! In fact, it carefully measures items and services based on several popular categories American people buy into on a daily, if not regular basis.
These categories largely include clothing and footwear, entertainment and recreation, food and drink, medicine and healthcare, communications and education tools, real estate and housing, and travel.
There’s one final group or category that’s much more general. The BLS defines this as “other goods and services,” which generally takes into account consumer purchases for hairdressing, personal care, tobacco, and even the cost of paying for funerals.
14. The Federal Reserve uses the CPI carefully to make sweeping economic changes.
The CPI isn’t just useful for businesses and corporations to keep track of re: decision-making. In fact, it’s very important for the Federal Reserve, who works with a target inflation rate from year to year.
By checking the CPI, the FR can decide to change economic elements such as introduce new financial policies to help slow the growth of inflation. This can also mean making changes to what’s become known as the Fed Rate.
15. US inflation is coming down, but not after some time.
According to official inflation data determined by the BLS via the CPI and its surveys, the US has struggled with increasing inflation from the end of 2020, leading to a peak of 9.1% in summer 2022.
However, since that peak, and according to figures at the time of writing, the inflation rate is dropping steadily. At the time of publishing, the rate of inflation in the US sits at around 3% – much lower than compared to a few years ago.
16. The Federal Reserve has an inflation benchmark to stick to.
The FR, or the Fed, sets a yearly inflation target of 2%. This is considered a healthy marker that the economy ideally needs to stick to so inflation neither grows too much nor shrinks below expectations. Inflation changes, especially sudden shifts, can dramatically affect the power of savings, interest rates, and the cost of everyday goods and items.
Interestingly, the 2% rate set by and for the FR is the same as the UK’s benchmark – meaning both nations strive to keep their economies balanced at a similar rate. Inflation in the US has been far above the 2% benchmark for several years – but it is finally coming down!
17. High CPIs mean less dominative government financing.
Economists state that a high CPI is likely to mean a government in charge of the US is likely to be more relaxed on financial measures, therefore making it easier for people to spend more money.
The opposite side, however, has its benefits, too. A very low CPI will encourage the government to work harder on economic policy, effectively fortifying the economy by making policy changes. Just as much as the CPI and its data is useful for businesses to see where American finances are heading, it’s also useful for government representatives to work out what they need to do next with the country’s finances.
18. The CPI also helps to set labour expectations.
In line with inflation and the changing costs of goods and services, employers can use CPI rates to determine how much they need to pay their workers. In fact, it’s not unheard of for workers to use raw CPI data to help back up requests for raises!
These employees often turn to local data to fine-tune their arguments. Their arguments are pretty sound, too – after all, if the cost of living and what’s in the BLS’ basket are increasing, it makes sense people should be paid more to be able to afford it all!
19. The CPI reached an all-time high in 2023.
CPI data tracked between 1992 and 2023 shows that it’s never been higher than it has been in 2023 – though that’s at the time of writing and will possibly change!
2023’s CPI was 304.7 – compare this to the CPI in 1992, which was just 140.3! That means goods and services back in the early 90s were much cheaper than they are today. It’s a good indicator that inflation has had a detrimental effect on what everyday people have to pay on a daily basis.
In fact, looking at urban consumer data within the CPI, the rate has increased steadily every year. A rare exception was 2009, where the CPI dipped below 2008’s rate, only to increase further in 2010. It’s been on an upcurve ever since.
20. Not everyone’s confident in the accuracy and power of the CPI.
The CPI is deeply rooted in US economic strategy and history – meaning that breaking free from this model would likely be an arduous, costly, and lengthy process! However, that doesn’t mean the CPI has avoided criticism over the years.
Variously, economists have argued that the CPI has either been too light and vague on inflation rates, or that it’s overstated the genuine picture from year to year.
There’s also a strong argument that the urban focus of the two main CPI models simply don’t take rural families and businesses into account.
21. The CPI affects millions of people across the US.
Regardless of its controversy and supposed accuracy, the CPI has a broad-reaching effect on millions of American households.
For example, the CPI can affect how much veterans receive in aid, how much poorer families receive in welfare and food stamps, and ultimately how much tax people pay at federal level.
Even if you weren’t aware of the CPI before, now you know that it can affect everything to earn and pay for in the US!
FAQs About CPI in the US
What is the current CPI in the US?
The best way to track CPI in the US is to visit the Bureau of Labor Statistics, which measures rates and delivers regular updates.
Is high CPI a good or bad thing?
A high CPI means everyday prices, and inflation, are rising. This can mean everyday living is becoming more expensive. However, the government can make changes to the economy to help relieve financial stress on families and businesses.
Is CPI the same as inflation?
No – the CPI in the US is a set of data that determines the current rate of inflation across America.
Do you know any interesting facts about the US Consumer Price Index? Share them in the comments below!
Further reading:
https://www.bls.gov/cpi/