Consumer Price Index (CPI) Explained: Data Sources & Methodology

What Is the Consumer Price Index?

The Consumer Price Index (CPI) measures changes in the price level of a basket of consumer goods and services. It's the most widely cited measure of inflation.

CPI Variants You Need to Know

CPI-U (All Urban Consumers)

The "headline" CPI covering 93% of the US population.

• FRED Series: CPIAUCSL (seasonally adjusted)
• IQ Score: 97

CPI-W (Wage Earners)

Covers urban wage earners and clerical workers (29% of population).

• Used for Social Security cost-of-living adjustments
• FRED Series: CPILEGSL

Core CPI (Less Food & Energy)

Excludes volatile food and energy prices.

• Better indicator of underlying inflation trends
• FRED Series: CPILFESL
• IQ Score: 96

Chained CPI (C-CPI-U)

Accounts for consumer substitution when prices change.

• Generally shows lower inflation than CPI-U
• FRED Series: SUUR0000SA0

International CPI Data

Eurostat HICP

IQ Score: 94

Harmonized Index of Consumer Prices for EU comparisons.

• Uses consistent methodology across 27 countries
• ECB's preferred inflation measure

OECD CPI Database

IQ Score: 93

Standardized CPI data for 50+ countries.

• Best for cross-country analysis
• Monthly and annual series

IMF CPI Data

IQ Score: 91

Global coverage including developing economies.

• Part of International Financial Statistics
• Annual data for 190+ countries

How CPI Is Calculated

1. Basket of Goods

BLS surveys ~80,000 items monthly in:

• Food and beverages (14%)
• Housing (42%)
• Transportation (16%)
• Medical care (9%)
• Other (19%)

2. Price Collection

Prices collected from:

• 23,000 retail establishments
• 50,000 housing units
• 8 major geographic areas

3. Index Calculation

Uses Laspeyres formula:

• Base period weights
• Current period prices
• Reference period (currently 1982-84 = 100)

CPI vs PCE: Which to Use?

Use CPI when: Analyzing consumer inflation, contract escalation, TIPS calculations

Use PCE when: Fed policy analysis, macro modeling, academic research

Finding the Right CPI Series

For US Inflation Analysis

• Start with CPI-U (CPIAUCSL)

• Use Core CPI for underlying trends

• Check regional CPIs for local analysis

For International Comparisons

• Use OECD standardized CPI

• Or Eurostat HICP for EU

• Check methodology notes for country-specific issues

For Real Returns/Adjustments

• Use NSA (not seasonally adjusted) CPI

• Match frequency to your data

• Consider Chained CPI for accurate adjustments

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