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.
- The Consumer Price Index For All Urban Consumers measures the monthly change in consumer prices for a representative basket of goods and services.
- The CPI-U is the headline Consumer Price Index, which covers 93% of the U.S. population.
- The CPI-U is distinct from the CPI-W index, which covers 29% of the U.S. population.
- This metric measures inflation and is an indicator of the effectiveness of government fiscal and monetary policies.
- The index is used in a variety of areas of finance and economics, including those in the financial markets, the Federal Reserve, business executives, and labor leaders.
The Consumer Price Index
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.
The amount by which the CPI-U rose on a seasonally adjusted basis in February 2023. The CPI-U was up 6% in the 12-month period ending February 2023, down from 6.4% in January.
Uses of the Index
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.
What Is in the CPI-U?
According to the Bureau of Labor Statistics, the CPI-U contains "expenditures by urban wage earners and clerical workers, professional, managerial, and technical workers, the self-employed, short-term workers, the unemployed, retirees and others not in the labor force."
What Is the CPI for All Urban Areas?
As of February 2023, the CPI for all urban areas for the past 12 months is 6%, a decrease from 6.4% in January. The CPI for All Urban Areas in February 2023 was up 0.4% from January 2023.
Is It Better for the CPI To Be High or Low?
It does not necessarily matter whether the CPI is high or low, but exactly in what context it is being measured. Extreme changes in either direction signal trouble for the economy. The U.S. targets an inflation rate of 2%, which it considers to represent a healthy, growing economy. If inflation is too high, then the purchasing power of citizens decreases; the Fed would need to enact a contractionary monetary policy. Conversely, if there is deflation, the economy is considered weak; the Fed would need to enact expansionary monetary policy.
The Bottom Line
The Consumer Price Index For All Urban Consumers (CPI-U) 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.