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Inflation refers to an overall increase in prices and a decline in the purchasing power of money.

2026-08-11·x-repost-20260811-082709

Inflation refers to an overall increase in prices and a decline in the purchasing power of money. In other words, the same amount of money can buy fewer goods or services. The inflation rate measures the pace at which inflation changes, or the rate at which money loses purchasing power. It provides a clear indication of the severity of inflation.

Inflation is a commonly used indicator when evaluating a country’s economic development. A healthy level of inflation may indicate that a country’s economy is in a stable growth phase. Excessively high inflation, however, can reduce people’s purchasing power and, in turn, affect productivity and a range of other economic conditions. The U.S.

inflation rate rose 5% year over year in March 2023. Although this was down from 9.1% in June 2022, it remained high. The 9.1% inflation rate recorded in June 2022 was the highest since 1981. Data Source So, what does an inflation rate of 9.1% actually mean for ordinary wage earners? How is the inflation rate calculated?

And what exactly is the CPI that people often discuss? Literally, inflation means an “increase in the amount of money in circulation.” It refers to a rise in the overall price level in society, including the average prices of goods and services. As a result, the purchasing power of money declines: the same amount of money can buy fewer goods or services.

If a central bank—the Federal Reserve in the United States or the People’s Bank of China in China—increases the amount of money in circulation, the amount of money available in the market increases. If the supply of goods does not increase at the same time, a shortage may arise, driving prices higher and reducing the purchasing power of money.

When this situation persists, it is referred to as inflation. Ray Dalio, founder of Bridgewater Associates, has proposed the following formula for prices: Price of Goods = Amount of Money in Circulation / Quantity of Goods Therefore, when a central bank significantly increases the money supply, it can lead to inflation and currency depreciation.

Beginning under Alan Greenspan, the United States adopted a policy known as quantitative easing, or QE. The policy was intended to stimulate the economy by injecting large amounts of money into the market over a short period. As of April 2022, the balance sheet of the U.S. central bank was approaching $9 trillion.

A cup of coffee provides an intuitive example from everyday life. Twenty years ago, a cup of coffee cost only $0.80. Ten years ago, it cost $1.25. Today, it costs $1.95. The price of the same cup of coffee rose from $0.80 to $1.95 over 20 years.

## Three Types of Inflation The fundamental cause of inflation is an increase in the money supply, which may lead to three situations that ultimately drive prices higher: ### Demand-Pull Inflation An increase in the money supply can lead to higher overall demand for goods and services.

When the increase in demand exceeds the increase in production capacity, supply and demand become unbalanced, and prices are pushed higher by rising demand. ### Cost-Push Inflation When an increase in the money supply causes the costs of goods or services to rise, prices may increase throughout the entire supply chain.

For example, if an increase in the money supply leads to a boom in oil exploration and development, oil prices may rise. The production costs of products that use oil as a raw material would then increase, ultimately driving up prices for consumers.

### Built-In Inflation Built-in inflation is generally associated with people’s adaptive expectations during a period of inflation. If people expect current inflation to continue in the future, they may demand higher wages to keep up with rising prices. Higher wages can then lead to further price increases, creating a cycle over a certain period.

## How Is Inflation Evaluated? When evaluating and calculating inflation, the Consumer Price Index (CPI) is the most commonly used measure. The Wholesale Price Index (WPI) and the Producer Price Index (PPI) are also used. ## Consumer Price Index (CPI) The CPI is one of the most widely used indicators.

It measures and evaluates the current price level and degree of inflation in an economy by directly comparing the prices consumers pay for goods and services in different periods. ## Wholesale Price Index (WPI) The WPI measures inflation by tracking changes in the prices of goods at different stages before they are sold.

Depending on a country’s economic policies, it may primarily cover producers, wholesalers, and other participants in the supply chain. For cotton, for example, it may include the prices of raw cotton, cotton yarn, cotton fabric, and cotton clothing. ## Producer Price Index (PPI) The PPI is used in some countries, including the United States.

It analyzes prices based on the amount of money received by sellers and measures inflation from the cost side of the economy. ## What Is the CPI? How Is the CPI Calculated? CPI stands for Consumer Price Index. It measures changes in the prices of goods and services related to people’s daily lives and is expressed as an index value.

One of its primary uses is to assess the degree of inflation. The CPI is one of the main indicators of inflation. By comparing the calculated CPI with a base value, it is possible to measure the rate of inflation over a given period.

An excessively high CPI growth rate may indicate that inflation is creating instability in the economic environment, requiring timely adjustments to monetary and fiscal policies to stabilize economic and social conditions.

The goods and services included in the CPI typically cover essential areas of daily life, such as food, transportation, housing, and clothing. The CPI formula is: CPI = Cost of the Market Basket in the Given Year / Cost of the Market Basket in the Base Year × 100% The standard CPI calculation process is as follows: 1.

Collect the prices of the selected group of goods or services in the given year. 2. Collect the prices of the same group of goods or services in the base year. 3. Add the prices at each of the two points in time to obtain the respective totals. 4. Divide the total price in the given year by the total price in the base year. 5. Multiply the result by 100%.

The following example illustrates the change in the CPI for pasta products sold in the United States from the base year to 2020: | Year | Pasta | Pasta sauce | |---|---:|---:| | Base year | $0.80 | $1.00 | | 2020 | $3.00 | $4.00 | Following the calculation steps above: The prices of the two products in the base year were $0.80 and $1.00, so their combined

cost was: $0.80 + $1.00 = $1.80 The prices of the two products in 2020 were $3.00 and $4.00, so their combined cost was: $3.00 + $4.00 = $7.00 Therefore: Cost in the given year / Cost in the base year = $7.00 / $1.80 ≈ 3.9 Thus: 2020 CPI ≈ 3.9 × 100% = 390% Depending on the dates selected, CPI can be analyzed monthly, quarterly, annually, or over other periods.

## What Is the Inflation Rate? The inflation rate refers to the rate at which prices rise, or the rate at which the purchasing power of money declines, during a period of inflation. The inflation rate provides a direct way to assess the severity of inflation.

The higher the inflation rate, the faster prices are rising and the faster the purchasing power of money is declining. People’s ability to consume may be significantly affected, potentially causing economic growth to stagnate or even contract.

Therefore, governments typically try to keep their countries’ inflation rates within a relatively low range to stabilize economic development.

Inflation can be calculated using the starting cost and ending cost over a given period: Inflation Rate = (Ending Cost − Starting Cost) / Starting Cost × 100% When calculating inflation using the Consumer Price Index (CPI), you need to determine the starting CPI and ending CPI for a given period and then use the following formula: Inflation Rate = (Ending

CPI − Starting CPI) / Starting CPI × 100% The following example uses the same pair of sneakers purchased in different years to calculate the inflation rate based on CPI: | Year | Price | |---|---:| | 2021 | $3.50 | | | $4.20 | | 2022 | $5.00 | Using CPI to calculate the inflation rates for 2020–2021 and 2021–2022: 2020 CPI = [(3 + 4) − (0.8 + 1)] / (0.8 +

1) = 288.9% 2021 CPI = [(3.5 + 4.2) − (0.8 + 1)] / (0.8 + 1) = 327.8% 2022 CPI = [(4 + 5) − (0.8 + 1)] / (0.8 + 1) = 400% Using CPI to calculate the inflation rate: Inflation Rate = (Current-Year CPI − Previous-Year CPI) / Starting CPI × 100% 2020–2021 inflation rate: (327.8% − 288.9%) / 288.9% = 13.5% 2021–2022 inflation rate: (400% − 327.8%) / 327.8% = 22% The chart below shows 20 years of changes in the U.S.

CPI, based on the 12-month change. According to the CPI report released by the U.S. Bureau of Labor Statistics on April 12, the headline CPI increased 8.5% year over year in March, marking the largest increase since December 1981. The main cause of this increase was the Federal Reserve’s extensive purchases of U.S.

Treasury securities and mortgage-backed securities (MBS). Other factors included the Russia–Ukraine war and the resulting increases in oil and food prices, all of which directly contributed to the rise in CPI. Data source: U.S. Department of Labor ## What Does an Inflation Rate of 8.5% Mean?

For most people, the most immediate effect of inflation is that everything becomes much more expensive. However, when explained from an investment perspective, an inflation rate of 8.5% can be alarming. For example, if 8.5% inflation continues for five years, $100,000 would have the purchasing power of only $66,000, representing a 34% decline in value.

If 8.5% inflation continues for eight years, $100,000 would have the purchasing power of only $51,000, representing a 49% decline in value. If 8.5% inflation continues for 10 years, $100,000 would have the purchasing power of only $43,000, representing a 57% decline in value. The table below shows the annual decline in the purchasing power of money.

| Year | Amount | Decline in Value | |---|---:|---:| | Principal | $100,000 | — | | Year 1 | $92,479 | 8% | | Year 2 | $84,917 | 16% | | Year 3 | $77,974 | 23% | | Year 4 | $71,598 | 29% | | Year 5 | | | $65,744 35% Year 6 $60,368 40% Year 7 $55,432 45% Year 8 $50,900 49% Year 9 $46,738 54% Year 10 $42,916 57% ## How Is the U.S. CPI Calculated? The U.S.

Consumer Price Index (CPI) is published monthly by the Bureau of Labor Statistics (BLS). The earliest CPI values were calculated and recorded in 1913. As the index evolved, the average CPI value from 1982 through 1984 was set at 100 as the benchmark for evaluating subsequent CPI levels.

For example, when the CPI is 100, the average prices of specific goods and services are at the same level as during the 1982–1984 base period. If the CPI is 125, it indicates that the price level has increased by 25%. ### 1. Categories of Goods and Services Included in the CPI The U.S.

CPI mainly covers categories such as food and beverages, housing, apparel, transportation, medical care, recreation, education, and other goods and services. The detailed categories may be adjusted over time.

| Major Category | Examples of Goods and Services | |---|---| | Food and beverages | Breakfast cereal, milk, coffee, chicken, wine, snacks, and more | | Energy | Oil, gasoline, natural gas, and more | | Housing | Rent, property fees, fuel, bedroom furniture, and more | | Apparel | Men’s shirts and sweaters, women’s dresses, jewelry, and more | |

Transportation | New vehicles, airfares, gasoline, motor vehicle insurance, and more | | Medical care | Prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services, and more | | Recreation | Televisions, toys, pets and pet products, sports equipment, admission to events, and more | | Education | College tuition,

postage, telephone services, computer software and accessories, and more | | Other goods and services | Tobacco and smoking products, haircuts and other personal services, funeral expenses, and more | CPI data collection also includes sales taxes, excise taxes, and government fees such as water and sewer charges, automobile registration fees, and vehicle tolls.

It does not include income taxes or investment expenses, such as stocks and bonds. ### 2. What Types of U.S. CPI Are There? #### CPI-W and CPI-U Historically, U.S. CPI data collection was divided into the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and the Consumer Price Index for All Urban Consumers (CPI-U).

CPI-W primarily covers consumer units whose members include clerical workers, sales workers, craft workers, operatives, service workers, or laborers. These groups represent at least 28% of the U.S. population.

Each January, Social Security recipients receive a cost-of-living adjustment (COLA) based on the CPI-W to help ensure that their Social Security and Supplemental Security Income benefits can keep pace with inflation.

CPI-U covers all urban consumers, including professionals, self-employed individuals, people living below the poverty line, unemployed people, retirees, and urban wage earners and clerical workers. It covers approximately 88% of the U.S. population and is more representative of the general public than the CPI-W.

As society has developed, the BLS has reformed its CPI calculations by combining the data collection processes for the CPI-W and CPI-U. The CPI-W now uses data from the CPI-U. ## Core CPI Core CPI, also known as the core Consumer Price Index, is a CPI measure that excludes food and energy goods, including oil and gasoline.

These two categories are continuously traded in the market, are nondiscretionary and difficult to substitute, and tend to experience the most severe and nonsystematic price fluctuations. As a result, they cannot accurately reflect overall changes in market prices. Excluding these two categories produces a relatively stable and informative CPI measure.

### CPI-E CPI-E stands for CPI for the Elderly. It is based on consumption data collected and analyzed specifically for people aged 62 and older. Approximately 24% of the U.S. population meets this criterion.

Within this group’s consumption distribution, healthcare spending accounts for roughly twice the share it does for all consumers in CPI-U or for employed individuals in CPI-W. CPI-E is therefore a more targeted type of CPI measure. ## 3. How the U.S. CPI Is Calculated ### Step 1: Data collection Before calculating the CPI, the U.S.

Bureau of Labor Statistics reviews self-reported spending data from households and individual consumers over a two-year period. There may be a time lag. For example, when calculating CPI data for 2021, the BLS would review data collected in 2018 and 2019 to determine the categories of goods for which data should be collected.

Prices for goods in different cities are then collected through various methods, including telephone sampling and in-person surveys.

### Step 2: Calculating CPI values for different categories Using the prices of the relevant goods collected across the eight major categories, the CPI value for each category is calculated separately according to the CPI formula.

### Step 3: Calculating the overall CPI using weights The shares of different consumer goods and services in total consumption vary over time. Using the weights established for the relevant year, the CPI values for the different categories are combined through a weighted calculation to produce the overall CPI. Below is a weight table published by the U.S.

Bureau of Labor Statistics for the February CPI: | Category | Weight | |---|---:| | | 13.4% | | Energy, including gasoline | 7.5% | | Commodities, including drugs and automobiles | 21.8% | | | 32.7% | | | 6.9% | | | 5.6% | | Other expenses | 12.1% | | Total | 100% | Source: U.S.

Bureau of Labor Statistics The starting values used in the calculation vary depending on the period being analyzed. Monthly CPI is calculated using the value at the end of the current month compared with the value at the end of the previous month, while annual CPI is calculated using the current year’s value compared with the previous year’s value.

For example, according to the latest data released by the U.S. Bureau of Labor Statistics, CPI increased 8.5% year over year in March. On a 12-month basis, core CPI increased 6.5%. ## 4. Release Frequency for Different Cities Because U.S. states have a high degree of autonomy, in addition to the national CPI report released monthly on the U.S.

Bureau of Labor Statistics website, different metropolitan areas also publish CPI data for their respective regions.

### The following metropolitan areas publish data monthly: - Chicago–Gary–Kenosha - Los Angeles–Riverside–Orange County, California - New York–Northern New Jersey–Long Island ### The following metropolitan areas publish data in even-numbered months: - Atlanta - Detroit–Ann Arbor–Flint, Michigan - Houston–Galveston–Brazoria, Texas - Miami–Fort Lauderdale,

Florida - Philadelphia–Wilmington–Atlantic City - San Francisco–Oakland–San Jose, California - Seattle–Tacoma–Bremerton, Washington ### The following metropolitan areas publish data in odd-numbered months: - Boston–Brockton–Nashua - Cleveland–Akron, Ohio - Dallas–Fort Worth, Texas - Washington–Baltimore How is China’s CPI calculated, and what categories does it include?

In mainland China, the CPI covers eight major categories of products: food; tobacco, liquor, and related goods; clothing; household equipment; health care; transportation and communications; education, culture, and entertainment; and housing.

These categories include 262 subcategories and at least 6,000 goods, covering the full range of consumption by urban and rural residents. The number of sampled items is adjusted according to differences in city size. For example, more types of goods are surveyed in first-tier cities than in second-tier cities.

For data collection, statistical authorities use business directories compiled from previous economic censuses, along with administrative records from relevant government departments. Businesses are ranked by retail sales or operating scale, and samples are selected randomly at equal intervals from largest to smallest.

The process also aims to cover different types and sizes of businesses and ensure a reasonable geographic distribution. Data collectors are required to follow the principles of assigning specific personnel to specific locations at specific times in order to obtain data that are as accurate and comparable as possible.

After data collection is completed, CPI values are calculated separately for different categories. The overall CPI is then calculated based on the weight assigned to each category. In China, these weights are determined primarily by the detailed shares of consumer spending on various goods and services among 130,000 urban and rural households nationwide.

The figures can be found in relevant yearbooks published by China’s National Bureau of Statistics. Under the current system, CPI weights are adjusted once every five years. China’s National Bureau of Statistics generally releases monthly CPI data around the 13th of each month, while quarterly and annual data are usually released around the 20th.

The published data mainly include: - CPI data for the country and for each province, autonomous region, and municipality; - CPI data for 36 major cities; - Monthly data covering the overall index, major-category indexes, and some subcategory indexes.

For example, food-related data include prices for grain, edible oils, meat and poultry and their products, fresh eggs, aquatic products, fresh vegetables, fresh fruit, and condiments. ## How Does Inflation Affect Economic Life? The effects of inflation vary among different.

Full text

Inflation refers to an overall increase in prices and a decline in the purchasing power of money.

Inflation refers to an overall increase in prices and a decline in the purchasing power of money. In other words, the same amount of money can buy fewer goods or services. The inflation rate measures the pace at which inflation changes, or the rate at which money loses purchasing power. It provides a clear indication of the severity of inflation. Inflation is a commonly used indicator when evaluating a country’s economic development. A healthy level of inflation may indicate that a country’s economy is in a stable growth phase. Excessively high inflation, however, can reduce people’s purchasing power and, in turn, affect productivity and a range of other economic conditions. The U.S. inflation rate rose 5% year over year in March 2023. Although this was down from 9.1% in June 2022, it remained high. The 9.1% inflation rate recorded in June 2022 was the highest since 1981. **Data Source** So, what does an inflation rate of 9.1% actually mean for ordinary wage earners? How is the inflation rate calculated? And what exactly is the CPI that people often discuss? Literally, inflation means an “increase in the amount of money in circulation.” It refers to a rise in the overall price level in society, including the average prices of goods and services. As a result, the purchasing power of money declines: the same amount of money can buy fewer goods or services. If a central bank—the Federal Reserve in the United States or the People’s Bank of China in China—increases the amount of money in circulation, the amount of money available in the market increases. If the supply of goods does not increase at the same time, a shortage may arise, driving prices higher and reducing the purchasing power of money. When this situation persists, it is referred to as inflation. Ray Dalio, founder of Bridgewater Associates, has proposed the following formula for prices: **Price of Goods = Amount of Money in Circulation / Quantity of Goods** Therefore, when a central bank significantly increases the money supply, it can lead to inflation and currency depreciation. Beginning under Alan Greenspan, the United States adopted a policy known as quantitative easing, or QE. The policy was intended to stimulate the economy by injecting large amounts of money into the market over a short period. As of April 2022, the balance sheet of the U.S. central bank was approaching $9 trillion. A cup of coffee provides an intuitive example from everyday life. Twenty years ago, a cup of coffee cost only $0.80. Ten years ago, it cost $1.25. Today, it costs $1.95. The price of the same cup of coffee rose from $0.80 to $1.95 over 20 years. ## Three Types of Inflation The fundamental cause of inflation is an increase in the money supply, which may lead to three situations that ultimately drive prices higher: ### Demand-Pull Inflation An increase in the money supply can lead to higher overall demand for goods and services. When the increase in demand exceeds the increase in production capacity, supply and demand become unbalanced, and prices are pushed higher by rising demand. ### Cost-Push Inflation When an increase in the money supply causes the costs of goods or services to rise, prices may increase throughout the entire supply chain. For example, if an increase in the money supply leads to a boom in oil exploration and development, oil prices may rise. The production costs of products that use oil as a raw material would then increase, ultimately driving up prices for consumers. ### Built-In Inflation Built-in inflation is generally associated with people’s adaptive expectations during a period of inflation. If people expect current inflation to continue in the future, they may demand higher wages to keep up with rising prices. Higher wages can then lead to further price increases, creating a cycle over a certain period. ## How Is Inflation Evaluated? When evaluating and calculating inflation, the Consumer Price Index (CPI) is the most commonly used measure. The Wholesale Price Index (WPI) and the Producer Price Index (PPI) are also used. ## Consumer Price Index (CPI) The CPI is one of the most widely used indicators. It measures and evaluates the current price level and degree of inflation in an economy by directly comparing the prices consumers pay for goods and services in different periods. ## Wholesale Price Index (WPI) The WPI measures inflation by tracking changes in the prices of goods at different stages before they are sold. Depending on a country’s economic policies, it may primarily cover producers, wholesalers, and other participants in the supply chain. For cotton, for example, it may include the prices of raw cotton, cotton yarn, cotton fabric, and cotton clothing. ## Producer Price Index (PPI) The PPI is used in some countries, including the United States. It analyzes prices based on the amount of money received by sellers and measures inflation from the cost side of the economy. ## What Is the CPI? How Is the CPI Calculated? CPI stands for Consumer Price Index. It measures changes in the prices of goods and services related to people’s daily lives and is expressed as an index value. One of its primary uses is to assess the degree of inflation. The CPI is one of the main indicators of inflation. By comparing the calculated CPI with a base value, it is possible to measure the rate of inflation over a given period. An excessively high CPI growth rate may indicate that inflation is creating instability in the economic environment, requiring timely adjustments to monetary and fiscal policies to stabilize economic and social conditions. The goods and services included in the CPI typically cover essential areas of daily life, such as food, transportation, housing, and clothing. The CPI formula is: **CPI = Cost of the Market Basket in the Given Year / Cost of the Market Basket in the Base Year × 100%** The standard CPI calculation process is as follows: 1. Collect the prices of the selected group of goods or services in the given year. 2. Collect the prices of the same group of goods or services in the base year. 3. Add the prices at each of the two points in time to obtain the respective totals. 4. Divide the total price in the given year by the total price in the base year. 5. Multiply the result by 100%. The following example illustrates the change in the CPI for pasta products sold in the United States from the base year to 2020: | Year | Pasta | Pasta sauce | |---|---:|---:| | Base year | $0.80 | $1.00 | | 2020 | $3.00 | $4.00 | Following the calculation steps above: The prices of the two products in the base year were $0.80 and $1.00, so their combined cost was: **$0.80 + $1.00 = $1.80** The prices of the two products in 2020 were $3.00 and $4.00, so their combined cost was: **$3.00 + $4.00 = $7.00** Therefore: **Cost in the given year / Cost in the base year = $7.00 / $1.80 ≈ 3.9** Thus: **2020 CPI ≈ 3.9 × 100% = 390%** Depending on the dates selected, CPI can be analyzed monthly, quarterly, annually, or over other periods. ## What Is the Inflation Rate? The inflation rate refers to the rate at which prices rise, or the rate at which the purchasing power of money declines, during a period of inflation. The inflation rate provides a direct way to assess the severity of inflation. The higher the inflation rate, the faster prices are rising and the faster the purchasing power of money is declining. People’s ability to consume may be significantly affected, potentially causing economic growth to stagnate or even contract. Therefore, governments typically try to keep their countries’ inflation rates within a relatively low range to stabilize economic development. Inflation can be calculated using the starting cost and ending cost over a given period: **Inflation Rate = (Ending Cost − Starting Cost) / Starting Cost × 100%** When calculating inflation using the Consumer Price Index (CPI), you need to determine the starting CPI and ending CPI for a given period and then use the following formula: **Inflation Rate = (Ending CPI − Starting CPI) / Starting CPI × 100%** The following example uses the same pair of sneakers purchased in different years to calculate the inflation rate based on CPI: | Year | Price | |---|---:| | 2021 | $3.50 | | | $4.20 | | 2022 | $5.00 | Using CPI to calculate the inflation rates for 2020–2021 and 2021–2022: **2020 CPI** = [(3 + 4) − (0.8 + 1)] / (0.8 + 1) = **288.9%** **2021 CPI** = [(3.5 + 4.2) − (0.8 + 1)] / (0.8 + 1) = **327.8%** **2022 CPI** = [(4 + 5) − (0.8 + 1)] / (0.8 + 1) = **400%** Using CPI to calculate the inflation rate: **Inflation Rate = (Current-Year CPI − Previous-Year CPI) / Starting CPI × 100%** **2020–2021 inflation rate:** (327.8% − 288.9%) / 288.9% = **13.5%** **2021–2022 inflation rate:** (400% − 327.8%) / 327.8% = **22%** The chart below shows 20 years of changes in the U.S. CPI, based on the 12-month change. According to the CPI report released by the U.S. Bureau of Labor Statistics on April 12, the headline CPI increased 8.5% year over year in March, marking the largest increase since December 1981. The main cause of this increase was the Federal Reserve’s extensive purchases of U.S. Treasury securities and mortgage-backed securities (MBS). Other factors included the Russia–Ukraine war and the resulting increases in oil and food prices, all of which directly contributed to the rise in CPI. **Data source: U.S. Department of Labor** ## What Does an Inflation Rate of 8.5% Mean? For most people, the most immediate effect of inflation is that everything becomes much more expensive. However, when explained from an investment perspective, an inflation rate of 8.5% can be alarming. For example, if 8.5% inflation continues for five years, $100,000 would have the purchasing power of only $66,000, representing a 34% decline in value. If 8.5% inflation continues for eight years, $100,000 would have the purchasing power of only $51,000, representing a 49% decline in value. If 8.5% inflation continues for 10 years, $100,000 would have the purchasing power of only $43,000, representing a 57% decline in value. The table below shows the annual decline in the purchasing power of money. | Year | Amount | Decline in Value | |---|---:|---:| | Principal | $100,000 | — | | Year 1 | $92,479 | 8% | | Year 2 | $84,917 | 16% | | Year 3 | $77,974 | 23% | | Year 4 | $71,598 | 29% | | Year 5 | | | $65,744 35% Year 6 $60,368 40% Year 7 $55,432 45% Year 8 $50,900 49% Year 9 $46,738 54% Year 10 $42,916 57% ## How Is the U.S. CPI Calculated? The U.S. Consumer Price Index (CPI) is published monthly by the Bureau of Labor Statistics (BLS). The earliest CPI values were calculated and recorded in 1913. As the index evolved, the average CPI value from 1982 through 1984 was set at 100 as the benchmark for evaluating subsequent CPI levels. For example, when the CPI is 100, the average prices of specific goods and services are at the same level as during the 1982–1984 base period. If the CPI is 125, it indicates that the price level has increased by 25%. ### 1. Categories of Goods and Services Included in the CPI The U.S. CPI mainly covers categories such as food and beverages, housing, apparel, transportation, medical care, recreation, education, and other goods and services. The detailed categories may be adjusted over time. | Major Category | Examples of Goods and Services | |---|---| | Food and beverages | Breakfast cereal, milk, coffee, chicken, wine, snacks, and more | | Energy | Oil, gasoline, natural gas, and more | | Housing | Rent, property fees, fuel, bedroom furniture, and more | | Apparel | Men’s shirts and sweaters, women’s dresses, jewelry, and more | | Transportation | New vehicles, airfares, gasoline, motor vehicle insurance, and more | | Medical care | Prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services, and more | | Recreation | Televisions, toys, pets and pet products, sports equipment, admission to events, and more | | Education | College tuition, postage, telephone services, computer software and accessories, and more | | Other goods and services | Tobacco and smoking products, haircuts and other personal services, funeral expenses, and more | CPI data collection also includes sales taxes, excise taxes, and government fees such as water and sewer charges, automobile registration fees, and vehicle tolls. It does not include income taxes or investment expenses, such as stocks and bonds. ### 2. What Types of U.S. CPI Are There? #### CPI-W and CPI-U Historically, U.S. CPI data collection was divided into the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and the Consumer Price Index for All Urban Consumers (CPI-U). CPI-W primarily covers consumer units whose members include clerical workers, sales workers, craft workers, operatives, service workers, or laborers. These groups represent at least 28% of the U.S. population. Each January, Social Security recipients receive a cost-of-living adjustment (COLA) based on the CPI-W to help ensure that their Social Security and Supplemental Security Income benefits can keep pace with inflation. CPI-U covers all urban consumers, including professionals, self-employed individuals, people living below the poverty line, unemployed people, retirees, and urban wage earners and clerical workers. It covers approximately 88% of the U.S. population and is more representative of the general public than the CPI-W. As society has developed, the BLS has reformed its CPI calculations by combining the data collection processes for the CPI-W and CPI-U. The CPI-W now uses data from the CPI-U. ## Core CPI Core CPI, also known as the core Consumer Price Index, is a CPI measure that excludes food and energy goods, including oil and gasoline. These two categories are continuously traded in the market, are nondiscretionary and difficult to substitute, and tend to experience the most severe and nonsystematic price fluctuations. As a result, they cannot accurately reflect overall changes in market prices. Excluding these two categories produces a relatively stable and informative CPI measure. ### CPI-E CPI-E stands for CPI for the Elderly. It is based on consumption data collected and analyzed specifically for people aged 62 and older. Approximately 24% of the U.S. population meets this criterion. Within this group’s consumption distribution, healthcare spending accounts for roughly twice the share it does for all consumers in CPI-U or for employed individuals in CPI-W. CPI-E is therefore a more targeted type of CPI measure. ## 3. How the U.S. CPI Is Calculated ### Step 1: Data collection Before calculating the CPI, the U.S. Bureau of Labor Statistics reviews self-reported spending data from households and individual consumers over a two-year period. There may be a time lag. For example, when calculating CPI data for 2021, the BLS would review data collected in 2018 and 2019 to determine the categories of goods for which data should be collected. Prices for goods in different cities are then collected through various methods, including telephone sampling and in-person surveys. ### Step 2: Calculating CPI values for different categories Using the prices of the relevant goods collected across the eight major categories, the CPI value for each category is calculated separately according to the CPI formula. ### Step 3: Calculating the overall CPI using weights The shares of different consumer goods and services in total consumption vary over time. Using the weights established for the relevant year, the CPI values for the different categories are combined through a weighted calculation to produce the overall CPI. Below is a weight table published by the U.S. Bureau of Labor Statistics for the February CPI: | Category | Weight | |---|---:| | | 13.4% | | Energy, including gasoline | 7.5% | | Commodities, including drugs and automobiles | 21.8% | | | 32.7% | | | 6.9% | | | 5.6% | | Other expenses | 12.1% | | Total | 100% | Source: U.S. Bureau of Labor Statistics The starting values used in the calculation vary depending on the period being analyzed. Monthly CPI is calculated using the value at the end of the current month compared with the value at the end of the previous month, while annual CPI is calculated using the current year’s value compared with the previous year’s value. For example, according to the latest data released by the U.S. Bureau of Labor Statistics, CPI increased 8.5% year over year in March. On a 12-month basis, core CPI increased 6.5%. ## 4. Release Frequency for Different Cities Because U.S. states have a high degree of autonomy, in addition to the national CPI report released monthly on the U.S. Bureau of Labor Statistics website, different metropolitan areas also publish CPI data for their respective regions. ### The following metropolitan areas publish data monthly: - Chicago–Gary–Kenosha - Los Angeles–Riverside–Orange County, California - New York–Northern New Jersey–Long Island ### The following metropolitan areas publish data in even-numbered months: - Atlanta - Detroit–Ann Arbor–Flint, Michigan - Houston–Galveston–Brazoria, Texas - Miami–Fort Lauderdale, Florida - Philadelphia–Wilmington–Atlantic City - San Francisco–Oakland–San Jose, California - Seattle–Tacoma–Bremerton, Washington ### The following metropolitan areas publish data in odd-numbered months: - Boston–Brockton–Nashua - Cleveland–Akron, Ohio - Dallas–Fort Worth, Texas - Washington–Baltimore How is China’s CPI calculated, and what categories does it include? In mainland China, the CPI covers eight major categories of products: food; tobacco, liquor, and related goods; clothing; household equipment; health care; transportation and communications; education, culture, and entertainment; and housing. These categories include 262 subcategories and at least 6,000 goods, covering the full range of consumption by urban and rural residents. The number of sampled items is adjusted according to differences in city size. For example, more types of goods are surveyed in first-tier cities than in second-tier cities. For data collection, statistical authorities use business directories compiled from previous economic censuses, along with administrative records from relevant government departments. Businesses are ranked by retail sales or operating scale, and samples are selected randomly at equal intervals from largest to smallest. The process also aims to cover different types and sizes of businesses and ensure a reasonable geographic distribution. Data collectors are required to follow the principles of assigning specific personnel to specific locations at specific times in order to obtain data that are as accurate and comparable as possible. After data collection is completed, CPI values are calculated separately for different categories. The overall CPI is then calculated based on the weight assigned to each category. In China, these weights are determined primarily by the detailed shares of consumer spending on various goods and services among 130,000 urban and rural households nationwide. The figures can be found in relevant yearbooks published by China’s National Bureau of Statistics. Under the current system, CPI weights are adjusted once every five years. China’s National Bureau of Statistics generally releases monthly CPI data around the 13th of each month, while quarterly and annual data are usually released around the 20th. The published data mainly include: - CPI data for the country and for each province, autonomous region, and municipality; - CPI data for 36 major cities; - Monthly data covering the overall index, major-category indexes, and some subcategory indexes. For example, food-related data include prices for grain, edible oils, meat and poultry and their products, fresh eggs, aquatic products, fresh vegetables, fresh fruit, and condiments. ## How Does Inflation Affect Economic Life? The effects of inflation vary among different.

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