Consumer Price Index Chart: Tracking 50 Years of Inflation and Purchasing Power

The Consumer Price Index (CPI) is a measure of the average change in prices over time in a fixed basket of goods and services purchased by households. The CPI is calculated by taking the price of each item in the basket and multiplying it by the quantity of that item purchased by households. The sum of these products is then divided by the sum of the quantities to get the CPI.

The CPI is a widely used measure of inflation, which is the rate at which prices are rising. Inflation can be caused by a number of factors, including increases in the cost of production, increases in demand, and changes in government policy.

The CPI is also used to adjust wages, pensions, and other payments to keep pace with inflation. This helps to ensure that people's purchasing power does not decline over time.

How the CPI is Calculated

The CPI is calculated by the Bureau of Labor Statistics (BLS) using a sample of about 80,000 households across the United States. The BLS collects data on the prices of over 800 items in the CPI basket, including food, housing, transportation, medical care, and education.

The CPI is calculated monthly and published on the BLS website. The CPI is also used to calculate the annual inflation rate, which is the percentage change in the CPI over the past 12 months.

The CPI and Inflation

The CPI is a key indicator of inflation. When the CPI rises, it means that prices are rising on average. This can be a sign of a strong economy, as businesses are able to pass on higher costs to consumers. However, inflation can also be a problem if it gets too high, as it can erode people's purchasing power and make it difficult for them to afford basic necessities.

The Federal Reserve, the central bank of the United States, uses the CPI to help set interest rates. When inflation is too high, the Fed may raise interest rates to cool the economy. When inflation is too low, the Fed may lower interest rates to stimulate the economy.

The CPI and Purchasing Power

The CPI is also used to measure purchasing power, which is the amount of goods and services that can be purchased with a given amount of money. When the CPI rises, purchasing power declines. This means that people can buy less with the same amount of money.

Purchasing power is important because it affects people's standard of living. When purchasing power declines, people may have to cut back on spending or find ways to earn more money.

Limitations of the CPI

The CPI is a valuable tool for measuring inflation and purchasing power. However, it is important to be aware of its limitations.

One limitation of the CPI is that it only measures prices in urban areas. This means that it does not reflect the experience of people who live in rural areas.

Another limitation of the CPI is that it does not measure the quality of goods and services. This means that it may not fully capture the impact of inflation on people's standard of living.

Despite its limitations, the CPI is a widely used and important measure of inflation and purchasing power. It is used by policymakers, businesses, and consumers to make informed decisions about the economy.

Historical CPI Data

The following table shows the CPI for all urban consumers (CPI-U) for the past 50 years.