What is inflation?
Inflation is defined by the Bureau of Labor Statistics as the general upward price movement of goods and services in an economy. There are many ways of measuring inflation, but one of the most common measures is the Consumer Price Index for Urban Consumers (CPI-U). The CPI shows changes in the prices paid by urban consumers for a “representative basket of goods and services,” or the most common goods and services purchased on an average month based on detailed surveys of what Americans spend their money on. The urban consumer group represents about 93% of the total US population.
There are four major categories of purchases covered in the CPI-U: food, energy, commodities like cars and clothes, and services like rent and healthcare. Not all categories are considered equally when generating the overall measure of inflation — each category is assigned a “relative importance” based on its proportion of all expenditures. Services typically are given the highest relative importance (in April, 59 on a scale of 100), followed by commodities (about 20), food (about 14) and energy (about 7).
