The Consumer Price Index (CPI) measures the average change over time in the prices consumers pay for a representative basket of goods and services, according to the U.S. Bureau of Labor Statistics (BLS). The agency describes it as a measure of inflation as consumers experience it in their day-to-day living expenses. It matters because it is used to adjust payments such as Social Security and to set parts of the federal income tax structure.
What goes into the basket
The CPI covers goods and services bought for consumption. BLS sorts all of these spending items into more than 200 categories, grouped into eight major groups: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. The basket runs from food to automobiles to rent.
Some government charges count as prices in the index. BLS lists water and sewerage charges, auto registration fees and vehicle tolls as examples. Taxes that are tied directly to a purchase, such as sales and excise taxes, are also included.
Other items are left out. The CPI excludes taxes not tied to specific purchases, such as income and Social Security taxes. It also excludes investment items such as stocks, bonds, real estate and life insurance, because BLS says these relate to savings and not to day-to-day spending.
Whose spending it reflects
BLS publishes the CPI for two groups of people. The first is all urban consumers, known as the CPI-U population. BLS says it makes up over 90% of the U.S. population and covers urban households across the country. It does not cover people in rural nonmetropolitan areas, farm households, military installations, religious communities, or institutions such as prisons.
The second group is urban wage earners and clerical workers, known as the CPI-W population. It is a subset of the first and, according to BLS, represents approximately 30% of the total U.S. population. It covers households that get at least half their income from wages in eligible occupations, such as clerical, sales, service, laborer and construction jobs. It excludes households of retirees, the self-employed and the unemployed, among others.
Both versions describe an average household, not a particular family. BLS says that someone who spends more than the average share of a budget on medical care, for example, may have a personal inflation rate that differs from the CPI.
How prices are collected and weighted
The basket is built from spending surveys. BLS gives an example of the time lag involved: CPI data in 2023 was based on the Consumer Expenditure Surveys for 2021. That year, over 20,000 consumer units gave quarterly interviews about their spending, and approximately another 12,000 kept diaries of purchases over two weeks. These answers set the weight, or relative importance, of each category.
BLS then draws samples in stages. It picks urban areas, then stores and other outlets where residents shop, then specific items within those outlets. For example, in a given supermarket the agency may choose one particular bag of apples of a set grade and weight to stand for the whole apples category.
Most prices are collected by BLS data collectors. In some cases other sources supply the data. BLS says that beginning with June 2021 indexes it uses a secondary dataset for gasoline, and that beginning with April 2022 indexes it uses transaction data from J.D. Power for new vehicles.
Recorded price changes are weighted by how much of a typical household’s spending each item represents. According to BLS, most basic indexes within the CPI have been calculated since January 1999 with a geometric mean formula. This formula allows for a modest amount of consumer substitution when prices of similar items shift.
How housing costs are measured
Shelter is one of the largest parts of the basket. BLS reported a relative importance of 35.625 for shelter as of December 2025, meaning that share of total consumer spending covered by the CPI. Rent of primary residence was 7.840 and owners’ equivalent rent of residences was 26.204. Relative importance is updated, so these figures are not permanent.
The CPI does not price owned homes. BLS treats a purchased home as an investment, and it counts mortgage interest, property taxes, real estate fees and most maintenance as costs of that investment. Instead, for homeowners it measures the shelter service the home provides, using the implicit rent an owner would pay if renting the home without furnishings or utilities.
To track price change, BLS collects rent data from a sample of rental units every six months. It adjusts the rents for changes in quality, such as an added bedroom, and for changes in which utilities the landlord includes. The six-month change is converted into a one-month change by taking the sixth root, and the monthly changes are chained together into an index.
How to read the index
Most CPI series use 1982-84 as a reference period. BLS sets the average index level for those 36 months equal to 100 and measures changes from that figure. An index of 110 means prices rose 10% since the reference period, and an index of 90 means they fell 10%.
BLS says percent changes are more useful than index-point changes, because points depend on where the index started. A rise of 18 points on a starting level of 225 is an 8% increase. The same 18 points on a starting level of 110 is a 16.4% increase. Reports often give one-month or 12-month percent changes.
The measure most often reported is the All Items CPI-U for the U.S. City Average. BLS also publishes thousands of other indexes, including one that leaves out food and energy. Some users prefer that index because food and energy prices are relatively volatile, and they want to focus on what they see as the core or underlying rate of inflation.
BLS publishes both seasonally adjusted and unadjusted data. Seasonal adjustment removes price movements that occur at about the same time and size every year, such as those from weather or holidays. BLS says unadjusted data suit consumers concerned about prices actually paid, and are used for contracts and pensions, because adjusted series are revised each year for up to five years.
Limits and uses
BLS says the CPI is frequently called a cost-of-living index but differs from a complete one. Because it does not try to capture every factor that affects living standards, such as social and environmental changes or changes in income taxes, the agency says it is sometimes called a “conditional cost-of-living index.”
The CPI also cannot compare price levels between places. An area index shows only how much prices changed in that area over time, so a higher index in one city does not mean prices there are higher than in another. BLS adds that local indexes have smaller samples and are more volatile than national or regional ones.
The index has many uses. BLS says government, business, labor and households use it as an economic indicator, and it is used to adjust other economic data into inflation-free dollars. It is also used to adjust income payments, tax structures and eligibility levels for government assistance. For Social Security, BLS says the annual cost-of-living adjustment is based on the CPI-W, while the Social Security Administration handles the payments.