In simple terms
A consumer price index, or CPI, measures how the prices households pay change over time. It follows a basket of goods and services that a typical household buys.
The index number itself means little. What matters is how far it moves. A CPI that rises 3 percent over a year means the basket costs 3 percent more.
How it works
Statisticians decide what goes in the basket by surveying what households actually spend. Each item gets a weight matching its share of spending.
Price collectors then check the same items in the same shops, month after month. In the United States, prices come from about 23,000 retail and service establishments across 75 urban areas, plus about 50,000 landlords or tenants for rent.
Coverage differs by country. The main US index, CPI-U, represents over 90 percent of the population and leaves out rural areas, farms and military bases. The international standard comes from the International Labour Organization, whose resolution on consumer price indices sets how the basket is grouped and weighted.
There is always a lag. The 2023 US index used spending patterns recorded in 2021.
Why it matters
The CPI is the number most people mean when they say inflation. Central banks watch it when setting interest rates.
It also moves money directly. Governments use it to adjust pensions, benefits, wages and tax brackets. In the United States it drives cost-of-living adjustments for more than 67 million Social Security beneficiaries.
Where you’ll see it
- Monthly inflation headlines from national statistics offices.
- Pension and benefit increases written into law or contracts.
- Rent and wage clauses that rise with the index.
- Figures reported in real terms, meaning adjusted using a price index.
Example
If a country’s consumer price index rises from 100 to 103.4 over a year, annual inflation is 3.4 percent.
Often confused with
Inflation. Inflation is the general rise in prices. A consumer price index is one instrument used to measure it.
Key facts
- The CPI is a measure of the average change over time in the prices paid by consumers for a representative basket of consumer goods and services.1
- The US basket spans more than 200 expenditure categories in eight major groups: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.1
- CPI-U represents over 90 percent of the US population, while CPI-W covers roughly 30 percent.1
- US basket weights come from Consumer Expenditure Surveys of about 20,000 consumer units interviewed quarterly plus about 12,000 units keeping two-week purchase diaries, with a lag: 2023 CPI data used 2021 expenditure information.1
- US prices are collected in 75 urban areas from about 23,000 retail and service establishments, with rent data from about 50,000 landlords or tenants.3
- The ILO lists three main uses for a CPI: indexation of wages, rents, contracts and social security payments; deflating household consumption in the national accounts; and measuring inflation as a macroeconomic indicator.2
Related concepts
In the news
Quick checkWhat does a consumer price index actually measure?Show answer
The average change over time in the prices households pay for a representative basket of goods and services.
Sources
- U.S. Bureau of Labor Statistics. Consumer Price Index Frequently Asked Questions. Undated (accessed 14 September 2026)
- International Labour Organization (ILOSTAT). Description of prices indicators. Undated (accessed 14 September 2026)
- U.S. Bureau of Labor Statistics. Consumer Price Indexes Overview. Undated (accessed 14 September 2026)
Editorially reviewed by Specialty Digest Editorial TeamLast reviewed September 17, 2026Researched and drafted with AI assistanceReport an issue