Consumer Price Index For All Urban Consumers (CPI-U) Definition
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 consumer prices in the United States based on a 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, CPI-U covers 93% of the US population. The data is compiled by the Bureau of Labor Statistics (BLS)which publishes the index every month.
Key points to remember
- The Consumer Price Index for all urban consumers measures the monthly change in consumer prices for a representative basket of goods and services.
- CPI-U is the stock of the Consumer Price Index, which covers 93% of the US population.
- The CPI-U is separate from the CPI-W, which covers 29% of the US population.
- This measure measures inflation and is an indicator of the effectiveness of the government’s fiscal and monetary policies.
- The index is used in various areas of finance and economics, including financial markets, the Federal Reserve, corporate executives and labor leaders.
Understanding the Consumer Price Index for All Urban Consumers (CPI-U)
Consumer Price Index (CPI) is the most commonly quoted indicator of inflation or deflation in the United States. The CPI-U is most often simply referred to as the CPI and is the index referenced by major news headlines. The related CPI-W index covers the 29% of the US population in households that rely primarily on income from office jobs and hourly wages. The CPI-W is primarily used to calculate cost-of-living adjustments for federal benefits and to index tax brackets to 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 imputed housing costs for owners are calculated from a separate survey of 8,000 rental units.
Prices are adjusted for changes in product quality or characteristics, and CPI indices for each product or service category are calculated in such a way as to allow substitution effects— the tendency of consumers to seek alternatives as prices rise. For example, higher beef prices could lead buyers to buy less beef and more chicken.
The CPI-U weights the prices of products and services based on consumer spending habits taken from a separate survey. The index includes tables showing monthly price changes for a wide variety of spending categories, from baby and toddler clothing to funeral expenses. Currency for each category is provided with and without seasonal adjustments taking into account seasonal price patterns.
The CPI-U remained unchanged in July 2022 on a seasonally adjusted basis. The CPI-U rose 8.5% for the 12 months ending in July before any seasonal adjustment.
Special Considerations
This index has a few different uses, which entirely depend on the entity using it. For instance:
- Financial markets use CPI-U trends to gauge 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 for making economic decisions.
- The CPI-U is also used to adjust other economic data for price changes and to present it 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, and the cost of school meals and pensions for federal public service retirees.
Published during the second week of the month for the previous month, the CPI-U is subject to significant short-term fluctuations. But in the context of detailed data, past reports and other economic releases, the CPI-U is an indispensable indicator of consumer price developments.