Comparing Standard Measures of Inflation
Inflation, measured by the Consumer Price Index (CPI), reflects the annual percentage change in the cost of a standard market basket of goods for an average consumer. It measures the change in total expenditures, not just a single product or sector. The inflation rate is typically stated as an annual rate; for example, the April inflation rate compares the CPI of April this year to April a year ago. The Bureau of Labor Statistics calculates the CPI.
There are however, several “flavors” of CPI. The “inflation rate” we present here first is the standard rate most frequently cited in the news media. It is the year-over-year percent change in the Consumer Price Index for All Urban Consumers: All Items, U.S. City Average which is a measure of the average monthly change in the overall price for goods and services paid by urban consumers. Urban consumers include roughly 88 percent of the total population, accounting for wage earners, clerical workers, technical workers, self-employed, short-term workers, unemployed, retirees, and those not in the labor force.
The “core inflation rate” excludes the volatile food and energy sectors from the consumer’s market basket. By reducing volatility, it is meant to provide a clearer picture of the underlying inflationary forces in the economy. The “trimmed PCE inflation rate” calculated by the Federal Reserve Bank of Dallas using data from the Bureau of Economic Analysis also attempts to reduce volatility and is a standard alternative to the core inflation rate. While the CPI is primarily based on data by the Consumer Expenditure Survey, the Personal Consumption Expenditures (PCE) primarily uses business surveys such as the Monthly Retail Trade Survey and the Quarterly Services Survey. The BLS provides a detailed comparison between the CPI and the PCE.
Phoenix MSA
National
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Want to learn more about the CPI and how it is compiled and used? Check out these great FAQs from the BLS! They cover topics such as how the CPI is calculated, its uses, and how it affects Social Security Cost of Living Adjustments (COLAs).