What Information Can Be Found in the Consumer Price Index?

What Information Can Be Found in the Consumer Price Index?

The information conveyed in the consumer price index is the average amount of change over time in the price paid by urban households for a defined set of consumer goods and services. The percent of change is considered to be a benchmark measure of inflation and a guide for the nation's economy.

Several other indicators get most of their value from the predictive ability of the index, which analysts use to confirm what they think the Federal Reserve might do in the future. The index is also used to adjust dollar values and make adjustments to cash flow mechanisms such as Medicare.

The expenditure items that make up the index’s basket of goods and services are classified into approximately 200 categories. These categories are arranged into eight groups such as food and beverages, housing, apparel, and transportation. The remaining groups are medical care, recreation, education and communication, and other goods and services.

The indicator represents the spending patterns of urban consumers and wage earners including clerical and low-income workers, professionals, the self-employed and unemployed. It is generally considered to reflect factors that affect consumer well-being. Information not found in the index includes those difficult to quantify, such as health, safety and crime.

The index’s goal is to compare a consistent base of products month to month and year to year. Figures are provided on a percentage basis to reflect changes from prior levels only and are shown as an annual run rate of growth to give a sense of the short-term inflationary outlook.