CPI (Consumer Price Index)

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The inflation index that turns nominal returns into honest purchasing-power returns.

Quick Answer

What is CPI (Consumer Price Index)?

CPI (Consumer Price Index) is the U.S. Bureau of Labor Statistics' headline measure of inflation, tracking the price of a representative basket of goods consumed by urban households. CPI is what most retirement and Treasury Inflation-Protected Securities (TIPS) calculations index against. Foliolytic uses official monthly CPI data going back to 1947.

Formula

π_t = (CPI_t / CPI_{t−12}) − 1 (year-over-year inflation rate)
CPIt = CPI level at time t · πt = year-over-year inflation rate

CPI itself is an index level (currently around 320 with 1982-84 = 100). The inflation rate is the year-over-year percent change in this level.

Intuition — what is this number telling you?

Real return calculations subtract CPI growth from nominal return. Foliolytic uses official monthly CPI data going back to 1947 to compute real (inflation-adjusted) returns and validate against TIPS-indexed benchmarks.

Note CPI is widely critiqued (hedonic adjustments, basket composition, owner-equivalent rent methodology). Alternative measures like Chained CPI or PCE often produce different inflation readings. For consistency with TIPS and standard practice, CPI is the default.

Worked example

Step-by-step

CPI in Jan 2024: 308.4. CPI in Jan 2025: 319.1.

YoY inflation: 319.1 / 308.4 − 1 = 3.5%

What's a good CPI (Consumer Price Index) value?

Long-run US CPI inflation since 1947 averages roughly 3.4% per year. The Fed targets 2% — CPI has spent more time above target than below historically.

Related metrics

Real Return  ·  Risk-Free Rate

Frequently asked questions about CPI (Consumer Price Index)

Is CPI the best inflation measure?

CPI is the standard for TIPS and most contractual indexation. PCE (Personal Consumption Expenditures) is the Fed's preferred measure and tends to run 0.3% lower than CPI on average.

How often is CPI updated?

Monthly. Foliolytic refreshes monthly to keep real-return calculations current.

Does Foliolytic use CPI?

Yes — for all real-return calculations going back to 1947. CPI data is sourced from FRED (St. Louis Fed).

What about chained CPI?

Chained CPI typically reads 0.25% lower per year than headline CPI. Some Social Security and tax-bracket calculations use chained CPI. Foliolytic uses headline CPI for consistency with TIPS.

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