Q. What is the CPI?
A. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a fixed market basket of consumer goods and services from A to Z. The CPI provides a way for consumers to compare what the market basket of goods and services costs this month with what the same market basket cost a month or a year ago.
Q. How is the CPI used?
A. The Consumer Price Index affects nearly all Americans because of the many ways it is used. The CPI is the most widely used measure of inflation and is sometimes viewed as an indicator of the effectiveness of government economic policy. It provides information about price changes in the Nation's economy to government, business, labor, and private citizens, and is used by them as a guide to making economic decisions.
The CPI is often used to adjust consumers' income payments, for example, Social Security; to adjust income eligibility levels for government assistance; and to automatically provide cost-of-living wage adjustments to millions of American workers. The CPI affects the income of almost 70 million persons. Changes in the CPI also affect the cost of lunches for 24.2 million children who eat lunch at school, while collective bargaining agreements that tie wages to the CPI cover about 2.8 million workers.
Q. Is the CPI a cost-of-living index?
A. No. The CPI is the most widely used measure of inflation and is frequently used for escalation purposes. Although such adjustments are sometimes called cost-of-living adjustments (COLA’S), the CPI is not strictly a cost-of-living index. The CPI is an index of price change only. It does not reflect the changes in buying or consumption patterns that consumers probably would make to adjust to relative price changes.
Q. Is the CPI the best measure of inflation?
A. The “best” measure of inflation for a given application depends on the intended use of the data. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow them to purchase, at today's prices, the same market basket of consumer goods and services that they could purchase in an earlier reference period. It is also the best measure to use to translate retail sales and hourly or weekly earnings into real or inflation-free dollars.
Q. Which index is the “Official CPI” reported in the media?
A. Each month, the Bureau of Labor and Statistics releases thousands of detailed CPI numbers to the press. However the press generally focuses on the broadest, most comprehensive CPI. This is known as “The Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items, 1982-84=100.”
Q. What index should I use for escalation?
A. The decision to employ an escalation mechanism, as well as the choice of the most suitable index, is up to the user. When drafting the terms of an escalation provision for use in a contract to adjust future payments, both legal and statistical questions can arise. For more detailed information, see the CPI Fact Sheet, Using the Consumer Price Index for Escalation.
Area indices such as Philadelphia and Pittsburgh tend to be more volatile than the U.S. All cities average (CPI-U).
Q. Can the CPI's for individual areas be used to compare living costs among the areas?
A. No, an individual area index measures how much prices have changed in that particular area over a specific time period. It does not show whether prices or living costs are higher or lower in that area relative to another. In general, both the market basket and relative prices of goods and services in the base period vary substantially across areas.
Q. Will the CPI be updated or revised in the future?
A. Yes. The CPI will need revisions as long as there are significant changes in consumer buying habits or shifts in population distribution or demographics.
As additional questions are received this list will be updated.