Consumer Price Index (CPI)

The CPI is the most widely watched inflation gauge in most countries. A government statistical agency — the U.S. Bureau of Labor Statistics, for example — selects a representative basket of items: groceries, rent, gasoline, medical care, clothing, and more. Each month, surveyors record prices for those same items, and the index rises or falls to reflect the change. The headline CPI number you see in economic calendars is usually reported as a year-over-year percent change, meaning today's basket cost versus the same month one year ago.

The unit matters. The index itself is an abstract number anchored to a base year (often set to 100). What moves markets is not the level but the rate of change — the percentage move. Suppose the basket costs the equivalent of index level 300 one year and 309 the next; that is a 3 % annual inflation rate. You can explore how percent-change columns work in our guide how to read percentage moves.

A common confusion: the CPI does not measure every price in the economy — only the prices consumers pay at the retail level. It also misses personal spending patterns; a household that never drives is still "charged" the basket's gasoline weight. That weighting difference is one reason economists also track PCE and core inflation. Central banks, bond traders, and wage negotiators all follow CPI releases closely because a surprise reading can shift interest-rate expectations almost instantly.