How to Use the Consumer Price Index

The Consumer Price Index (CPI) is a measure of the average changes in prices over time of a fixed market basket of goods and services. Learn how to correctly use this important measure.

How is the CPI Measured?

The Bureau of Labor Statistics publishes CPIs for two population groups: (1) a CPI for All Urban Consumers (CPI-U), which covers approximately 87 percent of the total population, and (2) a CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers 32 percent of the population. The CPI-U includes, in addition to wage earners and clerical workers, groups such as professional, managerial, and technical workers, the self-employed, short term workers, the unemployed, and retirees and others not in the labor force.

The CPI is based on the prices of food, clothing, shelter, and fuels, transportation fares, charges for physicians' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected in 87 urban areas across the country from about 50,000 housing units and approximately 23,000 retail establishments -- department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 87 locations. Prices of most other commodities and services are collected every month in the three largest metropolitan areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or phone calls of the Bureau's trained representatives.

In calculating the index, price changes for various items in each location are averaged together with weights that represent their importance in the spending of the appropriate population group. Local data are then combined to obtain a U.S. city average. Separate indexes are published by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for 26 local areas. Area indexes do not measure differences in the level of prices among cities; they measure only the average change in prices for each area since the base period.

The index measures the change from a designed reference point date --1982-84, which equals 100.0. An increase of 16.5 percent for example, is shown as 116.5. This change can also be expressed in dollars as follows: the price of a base period market basket of goods and services in the CPI has risen from $10 in 1982-84 to 11.65.

For further details see BLS Handbook of Methods, Chapter 17, the Consumer Price Index, Bulletin 2490, April 1997.

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