Is the Consumer Price Index the Best Measure of Inflation?

what is cpi print

But as an antidote to the inflation panic that the CPI generally induces, these adjustments show that the true picture today is much less alarming than the headline figure. The level of price inflation is likely 1% to 2% lower than the CPI number, which would bring it well in line with the Federal Reserve’s 2% target. Expectations that the Fed could enact as many as six cuts in 2024 helped the market rally hard into the end of last year. Over the years, the CPI has frequently drawn criticism that it has either understated or overstated inflation. Because the CPI is based on consumer spending, it doesn’t track third-party reimbursements for healthcare and significantly underweights healthcare relative to its proportion in the GDP as a result.

Expert takes on the CPI report

However, as GDP rises and falls, the metric doesn’t factor the impact of inflation or rising prices into its results. The GDP deflator addresses this by showing the effect of price changes on GDP, first by establishing a base year and, second, by comparing current prices to prices in the base year. The GDP deflator shows how much a change in GDP relies on changes in the price level. It expresses the extent of price level changes, or inflation, within the economy by tracking the prices paid by businesses, the government, and consumers. The U.S. Bureau of Economic Analysis (BEA) uses the gross domestic product (GDP) deflator as an indicator of U.S. inflation. The GDP deflator measures the aggregate prices of all goods and services produced by the nation and encompasses both the CPI and PPI statistics.

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It measures the average change in prices paid by consumers over a period of time for a basket of goods and services. The index is calculated and published monthly by the Bureau of Labor Statistics. It is among the most common measures of inflation, indicating the health and direction of the economy. It also serves in other capacities, notably to help make adjustments to certain income payments, such as Social Security and pensions for federal civil service retirees. The Consumer Price Index (CPI) measures the average change in prices for a basket of goods and services over time.

what is cpi print

The CPI and its components are also used as a deflator for other economic indicators, including retail sales and hourly/weekly earnings, to separate fundamental change from that reflecting change in prices. Employees may turn to CPI reports when approaching their employers for a raise based on nationwide increases in labor rates as well as pricing. As noted above, the basket of goods and services used in the CPI calculation is a composite of popular items commonly purchased by Americans. The weight of each component of the basket is in proportion to how they are sold. The annual CPI is reported as a whole number, and the figure is often greater than 100 (assuming current market prices are appreciating). It’s under increasing pressure to enact at least a quarter-point rate cut in September, and the next CPI report will most definitely become part of the central bank’s calculus.

Inflation Hits 3% as June Consumer Prices Fall Unexpectedly

For this reason, the CPI may not adequately reflect each individual’s experience about costs and changes over time. As the traditional CPI-U calculation only measures inflation for urban populations, it remains a less-than-reliable source of data for individuals living in rural areas. The CPI does not explicitly state how different demographics may be impacted by inflation.

However, January’s inflation data is particularly tricky to forecast, experts note. A hot reading on inflation devops engineer weroad means interest rates will stay higher for a little longer. Critics claim that adjustments for changes in product quality and features understate the CPI.

The Bureau of Labor Statistics publishes strategies for tax planning the CPI monthly, which reflects changes in the cost of living in the U.S. Additional indexes also measure inflation and include the Personal Consumption Expenditures (PCE) Price Index, the Producer Price Index (PPI), and the Gross Domestic Product (GDP) deflator. In response to higher-than-desired inflation rates via the CPI, the Fed adjusts the Fed funds rate. The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers.

It is still the “headline” number – and as such, it continues to play an outsized role in forming public opinion about inflation. With the January CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. The CPI Index is an inflation indicator closely watched by policymakers and financial markets. A related CPI measure is used to calculate cost-of-living adjustments for federal benefit payments.

Trends observed in the GDP price deflator are usually similar to the trends in the CPI.
It also serves in other capacities, notably to help make adjustments to certain income payments, such as Social Security and pensions for federal civil service retirees.
That said, CPI is the better known inflation gauge and it very much informs the Fed’s thinking.

Below please find a selection of commentary from economists, strategists and other market pros on what to expect from the next CPI report, sometimes edited for clarity or brevity. But try as the Fed might to tame inflation by increasing unemployment, the labor market has thus far refused to play along. These facts alone make it harder for the Fed to ease up on its rate policy.

A higher CPI often means that a less stringent government policy is generally in place. This means that debt is often easier to obtain for cheaper and that individuals have greater spending capacity. On the other hand, lower or decreasing CPI may indicate that the government may ease policies that help boost the economy. Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom. Today, at the heart of the transition to digital, we combine our industrial power with innovative computerised foreign currency transactions solutions to create even more value for our customers.

The gap between the unadjusted CPI and the inflation metrics that employ volatility-reduction techniques is larger still. The headline number ranges up to 250 basis points above the adjusted figures. It is also generally agreed that the volatility in the inflation signal should be reduced to get an accurate picture of the broad price trends in the economy. There are many ways to attack this, and the Federal Reserve system has spawned at least half a dozen alternative volatility-reducing metrics.

Though inflation peaked back in 2022, the fact remains that it’s still too high for the central bank’s comfort. That’s why the Consumer Price Index, or CPI report, has become pretty much the star of the economic calendar. Comparing the two measures shows that the CPI almost always runs “hot” – exaggerating the apparent threat of inflation.

The Next CPI Report: What to Expect

Core CPI excludes volatile food and energy prices, and is considered to be a better predictor of future inflation. The data are expressed as percent changes, and are measured both year-over-year and month-to-month. The CPI is widely used by financial market participants to gauge inflation and by the Federal Reserve to calibrate its monetary policy.

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