What is the Consumer Price Index and Why Should You Care?

Every month, the Bureau of Labor Statistics releases the CPI report.  It’s not an exciting report by any means, but it’s interesting to watch these types of economic trends.

CPI stands for Consumer Price Index and takes into account the increase in the price of a representative ‘basket’ of goods and services.  It doesn’t take into account every increase in price, but gives us an idea of how prices change over time.  The CPI-U gives us data on price increases for goods used by urban consumers; the figures I’ll use represent the CPI-U.

Basic CPI Interpretation

The BLS report showed that the 12-month average increase in the price of goods (CPI-U) was 1.7%.  While this may not seem like a large increase, consider the following groups of goods and services:

Medical Care Services: 4.2% increase

Food: 2% increase

Shelter: 2.1%

Gasoline 1.8%

So if you’ve felt like your food bill has been creeping up in the last year, it probably has.  Same for gasoline and medical care services.

What’s the point in all of this?  It’s a good reminder that inflation is always lurking.  We need to proactively plan for inflation by increasing our savings, investing wisely, increasing our income, and by adjusting our spending.

Have you felt an increase in any of these goods or services?  What changes have you made to adjust?