Consumer Price Index for All Urban Consumers (CPI-U)

What Is the Consumer Price Index for All Urban Consumers (CPI-U)?

The Consumer Price Index For All Urban Consumers (CPI-U) measures changes in U.S. consumer prices based on a representative basket of goods and services. The term urban in the index refers to areas around any city or town with a population of at least 10,000. As a result, the CPI-U covers 93% of the U.S. population. Data is compiled by the Bureau of Labor Statistics (BLS), which publishes the index every month.

Understanding the Consumer Price Index for All Urban Consumers (CPI-U)

The Consumer Price Index (CPI) is the most widely cited indicator of U.S. inflation or deflation. The CPI-U is most often simply called CPI and is the index referenced by headlines in the news. The related CPI-W index covers the 29% of the U.S. population in households relying predominantly on income from clerical and hourly wage jobs. CPI-W is used primarily to calculate cost-of-living adjustments for federal benefits and to index income tax brackets for inflation.

The CPI-U is based on a scientifically selected random sample of 94,000 prices collected monthly from retail and service establishments by the BLS. Rental housing prices and the imputed shelter costs for homeowners are calculated from a separate survey of 8,000 rental housing units.

The prices are adjusted for changes in product quality or features, and CPI indexes for each category of product or service are calculated in a way that allows for substitution effects—the tendency of consumers to seek alternatives as prices rise. For example, rising beef prices might cause shoppers to buy less beef and more chicken.

The CPI-U weights the products and services prices based on consumer spending patterns derived from a separate survey. The index includes tables showing monthly price changes for a wide variety of spending categories, from infants' and toddlers' apparel to funeral expenses. The change for each category is provided with and without seasonal adjustments taking into account seasonal pricing patterns.

How the CPI-U Is Used

This index has a few different uses, which depend entirely on the entity using it. For instance:

• Financial markets use the CPI-U trends to assess inflation
• Federal Reserve policymakers use the report to analyze the effectiveness of monetary policy
• Business executives, labor leaders, and consumers also use the CPI-U (and other CPI data) as a guide to making economic decisions
• The CPI-U is also used to adjust other economic data for changes in prices and to present them on an inflation-adjusted basis

The index is also used to make the cost-of-living adjustments (COLA) for Social Security and food stamp recipients, as well as the cost of school lunches and pensions for Federal Civil Service retirees.

Published during the second week of the month for the prior month, the CPI-U is subject to considerable short-term fluctuations. But in context with the detailed data, prior reports, and other economic releases the CPI-U is an indispensable gauge of the trend in consumer prices.

The Bottom Line

The Consumer Price Index For All Urban Consumers measures inflation; the changes in U.S. consumer prices based on a representative basket of goods and services. It is an important economic indicator, representing how prices in the economy are moving, and a key statistic in how the Fed determines monetary policy.