What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a monthly measure of the average change in prices that urban consumers pay for a basket of goods and services, published by the US Bureau of Labor Statistics (BLS). When news reports say inflation was 3% over the past year, they usually mean the CPI rose 3% over the past 12 months.

The CPI is a measurement, not the thing being measured. Inflation is the broad rise in prices; the CPI is the most widely used yardstick for it in the United States. It also does real work in your finances, because several versions of it set how much your Social Security check, your tax brackets, and some bonds adjust each year.

What Does the CPI Measure?

The CPI tracks the prices of goods and services that households buy: food, housing, clothing, transportation, medical care, recreation, education, and more. BLS collects prices each month in 75 urban areas from approximately 22,000 retail establishments and about 6,000 housing units.

Each item’s weight reflects how much households spend on it, based on the Consumer Expenditure Survey. In the CPI for All Urban Consumers (CPI-U), the headline version, housing dominates.

Source: BLS relative importance of CPI-U components, December 2025.

Several things are deliberately left out. Income taxes are excluded, and so are investment items like stocks, bonds, and life insurance. For homeowners, the CPI doesn’t track house prices or mortgage payments either. It uses owners’ equivalent rent, an estimate of what it would cost to rent a home like the one you own, on the reasoning that a house is partly an investment and the CPI measures the cost of the shelter it provides.

How Is CPI Calculated?

At its core, the CPI compares what a basket of goods costs now with what it cost in a reference period. BLS sets the average price level for 1982-1984 equal to 100, so an index reading of 300 means the basket costs three times what it did then.

CPI = (Cost of basket in current period / Cost of basket in base period) x 100

In practice BLS builds the index from thousands of item-level price changes, weighted by spending, but the idea is the same.

The calculation you’re more likely to need turns two index readings into an inflation rate:

Inflation Rate = ((CPI in later period - CPI in earlier period) / CPI in earlier period) x 100

If the index moves from 300.0 to 309.0 over a year, inflation for that year is (309.0 - 300.0) / 300.0 = 3%. These are illustrative numbers; actual index values are published in the BLS CPI tables.

You can use the same ratio to express an old dollar amount in today’s terms. If the index was 250 when you paid $1,000 for something and it’s 309 now, the equivalent cost today is $1,000 x (309 / 250) = $1,236. To estimate how long it takes for prices to double at a steady rate, the Rule of 72 divides 72 by the annual inflation rate, so 3% inflation doubles prices in roughly 24 years.

CPI-U vs. CPI-W vs. Chained CPI

BLS publishes several versions of the index, and the differences matter because different laws are tied to different versions.

The CPI-U and CPI-W use a formula that assumes consumers don’t switch between categories of goods when relative prices change. The chained CPI, published starting with July 2002 data, uses a formula that accounts for that substitution, such as buying more chicken when beef gets expensive. Because it captures that switching, it tends to rise more slowly: BLS puts the average gap in December-to-December changes from 2001 to 2023 at about 0.2 percentage points a year.

That gap is small in one year and meaningful over decades, which is why the choice of index is a policy decision, not just a technical one.

You’ll also see core CPI, which excludes food and energy. It isn’t a separate population index; it’s the CPI-U with its two most volatile categories removed, and it’s used to judge whether price increases are broad-based or driven by a temporary shock.

What Is the CPI Used For?

Social Security raises. The annual cost-of-living adjustment (COLA) is based on the CPI-W. The Social Security Administration compares the average CPI-W for July through September with the same quarter from the last year a COLA was determined, and the percentage increase becomes the COLA effective in December, payable in January. If the index hasn’t risen, there is no COLA, but benefits aren’t cut. After the CPI-W fell during the brief deflation of 2009, there was no COLA for 2010, and none for 2011 either, because the index was still below the 2008 level that set the last increase.

Tax brackets. Since the Tax Cuts and Jobs Act (TCJA) took effect in 2018, federal income tax brackets, the standard deduction, and many other tax figures are adjusted each year using the chained CPI rather than the CPI-U. Because the chained CPI tends to grow more slowly, brackets rise slightly more slowly than they would have under the old method.

Inflation-protected bonds. The principal of Treasury Inflation-Protected Securities (TIPS) adjusts with the CPI-U, so both the principal and the interest paid on it rise with measured inflation.

Contracts and pensions. BLS notes that the CPI-U and CPI-W are commonly used in escalation agreements and to adjust pensions, which is one reason those two series are final when published rather than revised.

The Federal Reserve is a notable exception. Its 2% inflation target is set in terms of the personal consumption expenditures (PCE) price index, a different measure produced by the Bureau of Economic Analysis.

Limitations of the CPI

The CPI is an average, so it won’t match your personal inflation rate. A renter in a fast-rising housing market, a retiree with heavy medical spending, and a commuter with a long drive all face different baskets than the index. BLS does publish a research index for Americans 62 and older (R-CPI-E), but cautions that it has significant limitations and it isn’t used to set benefits.

BLS itself describes the CPI as differing in important ways from a complete cost-of-living measure. It adjusts for quality changes and new products, but those adjustments involve judgment calls about how much of a price increase reflects a better product rather than a higher price.

The fixed-weight CPI-U also doesn’t reflect substitution between categories, which is the gap the chained CPI was designed to close.

For a long-range plan, the practical point is that any single inflation assumption is an estimate. If you’d rather test your plan against inflation the index has actually recorded than against one assumed rate, choose historical US inflation as the data source in ProjectionLab’s Chance of Success simulations.

Frequently Asked Questions

What does CPI stand for? Consumer Price Index. It’s published monthly by the Bureau of Labor Statistics, and the headline version is the CPI-U, which covers all urban consumers.

What is the difference between CPI and inflation? Inflation is the general rise in prices. The CPI is one way of measuring it. The inflation rate you see reported is usually the 12-month percentage change in the CPI-U.

When is CPI released? Monthly, for the prior month’s prices. BLS posts the release schedule for the full year in advance on bls.gov.

Which CPI is used for Social Security? The CPI-W. The COLA reflects the increase in the average CPI-W for the third quarter (July through September) compared with the third quarter of the last year a COLA was determined.

Why do tax brackets use chained CPI? The TCJA switched federal tax indexing to the chained CPI starting in 2018. It accounts for consumers substituting between categories when prices change, and it tends to rise more slowly than the CPI-U, so bracket thresholds grow slightly more slowly over time.

What is core CPI? The CPI-U excluding food and energy prices. Those categories swing sharply with weather, supply shocks, and oil prices, so core CPI gives a steadier read on underlying price trends.