Core CPI excludes volatile food and energy prices and is the figure most closely watched by central banks when setting policy.
A Consumer Price Index (CPI) measures the average change in prices paid by consumers for a representative basket of goods and services over time. The basket typically includes categories such as housing, food, transportation, healthcare, clothing, and recreation. By tracking how the total cost of that basket moves from one period to the next, a CPI provides a standardized measure of purchasing power and price-level changes.
Different countries and statistical agencies publish their own CPI measures. In the United States, the Bureau of Labor Statistics (BLS) publishes the CPI for All Urban Consumers (CPI-U) monthly, tracking roughly 80,000 prices across 75 urban areas. Other major economies publish equivalent indices under different names, but the underlying methodologies are broadly similar: a weighted basket, a base period, and periodic sampling.
Other common uses include adjusting social security payments and subsidized incomes, setting wage growth benchmarks in labor contracts, and deflating nominal economic data (such as GDP) to produce real, inflation-adjusted figures.
To calculate CPI, a base period is chosen as the reference point (set to 100). For each subsequent period, the formula is:
CPI = (Current Period Basket Value / Base Period Basket Value) × 100
The following illustrative example shows how this works over a ten-year period using a hypothetical basket:
Year | Basket Value | CPI |
2015 | $100 | 100 |
2016 | $102 | 102 |
2017 | $104 | 104 |
2018 | $107 | 107 |
2019 | $109 | 109 |
2020 | $110 | 110 |
2021 | $115 | 115 |
2022 | $124 | 124 |
2023 | $129 | 129 |
2024 | $133 | 133 |
To calculate the inflation or deflation rate between any two periods, use:
Inflation rate = ((CPI in Period 2 - CPI in Period 1) / CPI in Period 1) × 100
Using the table above: from 2021 to 2022, inflation rose by approximately 7.8% ((124 - 115) / 115 × 100). This illustrative pattern broadly mirrors the actual spike in US CPI during that period, driven by post-pandemic supply chain disruptions and stimulus spending.
Headline CPI covers the full basket, including food and energy prices. These categories tend to be volatile, swinging sharply with seasonal demand, geopolitical events, or supply shocks. Core CPI strips out food and energy to provide a clearer view of underlying price trends.
CPI reports have become closely watched events in crypto markets. Because digital asset valuations are sensitive to interest rate expectations, a higher-than-expected CPI reading typically signals that rate cuts are less likely, which can create short-term headwinds for risk assets including cryptocurrencies.
In 2025, US CPI averaged approximately 2.6%, a notable decline from the 2022-2023 highs but still above the Fed's 2% target. In April 2026, CPI rose 3.8% year-over-year, with energy prices a primary driver, reducing expectations for near-term rate cuts. Understanding how CPI data feeds into interest rate decisions helps crypto market participants contextualize macro-driven price movements.
CPI is a useful tool not just for governments and central banks when making macroeconomic policy decisions, but it can also be useful for consumers to understand how their buying power can change over a period of time.