June 25, 2026

What Is CPI? Consumer Price Index Formula and Uses

What is CPI, how is it calculated, and what does it measure? A plain-English guide to the Consumer Price Index, CPI-U, CPI-W, core CPI, and local price context.

consumer price index what is CPI Consumer Price Index definition how is CPI calculated CPI formula inflation by city

Consumer Price Index (CPI) is the federal government’s main measure of how consumer prices change over time. It follows a broad basket of goods and services, then compares that basket with an earlier period.

That makes CPI useful for inflation headlines, Social Security cost-of-living adjustments, tax brackets, contracts, and policy debates. It also has a limit: CPI measures price change, not absolute price level. It can tell you prices rose, but not whether coffee, pet supplies, or household essentials are expensive in your city today.

This guide explains what CPI measures, how the CPI formula works, why CPI-U and CPI-W differ, what core CPI removes, and how local CostInflation price pages can add city and category context. For the percentage-change side of the same topic, see What Is the Inflation Rate?.

What is the Consumer Price Index formula graphic showing CPI as current basket cost divided by base basket cost, with CPI-U, CPI-W, core CPI, and local price context. — CPI is a broad price-change measure. It is strongest for national inflation context; local price histories help show how specific categories compare across CostInflation’s published market areas.

What CPI measures

The Bureau of Labor Statistics defines CPI as the average change over time in the prices paid by consumers for a representative basket of consumer goods and services. In plain English, CPI tracks how much more or less a typical consumer basket costs than it did before.

The basket covers more than groceries. BLS groups consumer spending into eight major categories:

CPI category	Examples
Food and beverages	Groceries, restaurant meals, and alcoholic beverages.
Housing	Rent, owners’ equivalent rent, utilities, and household furnishings.
Apparel	Clothing, shoes, and related services.
Transportation	Vehicles, gasoline, insurance, repairs, and public transportation.
Medical care	Medical services, insurance, prescription drugs, and medical goods.
Recreation	Entertainment, sports, hobbies, pets, and related services.
Education and communication	Tuition, phone service, internet, postage, and computer services.
Other goods and services	Personal care, tobacco, and other recurring consumer services.

Different inflation types affect these categories differently — see Types of Inflation for a full breakdown.

Housing is usually the largest part of the basket, so rent and owner-housing measures can carry a large share of the headline CPI move.

CPI formula

The basic CPI formula compares the current basket cost with the same basket in a base period:

Step	Formula or value	Meaning
CPI formula	(current basket cost / base basket cost) x 100	Shows the current basket relative to the base period.
Base period	1982-84 = 100	The standard reference period for the main U.S. CPI series.
Example	315	A basket that cost $100 in the base period would cost about $315 in the current period.

To turn CPI readings into an inflation rate, compare one CPI level with an earlier CPI level:

Inflation rate = ((new CPI - old CPI) / old CPI) x 100

If CPI rises from 300 to 312, the inflation rate is 4% because the index increased by 12 points and 12 divided by 300 equals 0.04.

CPI-U vs CPI-W

BLS publishes several CPI series because one basket cannot represent every household equally.

CPI series	Who or what it covers
CPI-U	All Urban Consumers. This is the broad CPI series most often cited in inflation news and covers more than 90% of the U.S. population.
CPI-W	Urban Wage Earners and Clerical Workers. This narrower series covers about 30% of the U.S. population and is used for Social Security cost-of-living adjustments.
C-CPI-U	Chained CPI. This version accounts for consumer substitution across categories and is revised after more spending data becomes available.

For most readers, CPI-U is the headline measure. CPI-W matters when a benefit, contract, or adjustment formula specifically names it.

Core CPI

Headline CPI includes the full basket: food, energy, housing, transportation, medical care, and the rest of consumer spending. That is the closest CPI version to what households feel in daily costs.

Core CPI removes food and energy because those categories can swing sharply from weather, harvests, oil markets, and global supply shocks. Core CPI is useful when analysts want to look past short-term volatility, but it is not a replacement for household reality. Food and energy still matter to consumers.

One policy detail is worth keeping straight: the Federal Reserve’s formal longer-run 2% inflation goal is measured with the price index for personal consumption expenditures, not CPI. CPI still matters because it is timely, widely cited, and deeply connected to consumer inflation coverage.

City prices differ from CPI

National CPI is an average. It does not tell you whether a specific market is high or low in dollars, and BLS warns that local CPI indexes measure price change within an area, not living-cost differences between areas.

City and category price pages fill that gap. CostInflation publishes price history pages for selected retail categories across 12 published market areas. Those pages are not official CPI, but they help readers compare the national inflation idea with real category prices.

Useful starting points include Coffee Price Trends, Burger Cost by City, Cost of Dog Ownership Per Year, Cost of Cat Ownership Per Year, Consumer Health Retail Goods Inflation, and Menstrual Care Product Inflation.

Readers who want a custom basket can also use the Receipt Builder to compare selected groceries and household categories across CostInflation’s published market areas.

What CPI misses

CPI is the most widely used U.S. consumer inflation measure, but it is not the same thing as a personal cost-of-living number.

It reflects urban consumers. Rural nonmetropolitan households, farm households, military installations, and institutional populations sit outside the main CPI-U population.

It uses average spending weights. A household that spends more than average on rent, groceries, medical care, or gasoline can feel a different inflation rate from the headline number.

It measures change, not price level. Two areas can have similar inflation rates while one remains more expensive in dollars.

It adjusts for quality and substitution. These adjustments make CPI more consistent over time, but they can make the index feel different from a shopper’s memory of a specific product.

The practical way to use CPI is simple: use CPI for broad inflation direction, then use category and city price data for local detail.

FAQ

What is the Consumer Price Index?
The Consumer Price Index is a monthly measure of average price change for a representative basket of consumer goods and services. BLS publishes it as a primary U.S. inflation measure.

What is CPI used for?
CPI is used in inflation reporting, cost-of-living adjustments, tax-bracket indexing, contract escalation, economic analysis, and public policy.

How is CPI calculated?
BLS selects urban areas, outlets, item categories, and specific items through statistical samples, collects prices, weights price changes by spending importance, and compares the basket with a base period.

What is the CPI formula?
The simplified formula is (current basket cost / base basket cost) x 100. Inflation from CPI is calculated as ((new CPI - old CPI) / old CPI) x 100.

What is the difference between CPI-U and CPI-W?
CPI-U covers all urban consumers and is the broad headline measure. CPI-W covers urban wage earners and clerical workers and is used for Social Security cost-of-living adjustments.

What is core CPI?
Core CPI is CPI with food and energy removed. It helps analysts look past volatile categories, but headline CPI includes the full basket households pay for.

Is CPI the same as inflation?
No. CPI is an index that measures price change. Inflation is the percentage increase calculated from CPI or another price index.

Why can my expenses feel different from CPI?
Your personal inflation depends on where you live, what you buy, and how your budget is split across housing, food, transportation, medical care, and other categories.

Where can I compare city-level prices?
Use CostInflation’s published index pages or build a custom basket with the Receipt Builder.

What is the current CPI?
CPI changes every month. For the current official reading, use the BLS CPI pages. For category and city price context, use CostInflation’s published index pages.