GlossaryUS consumer price index (CPI)
US consumer price index (CPI)
US consumer price inflation, calculated the way it is published: the annual rate as the main line, plus the core rate excluding food and energy and the annualized three-month rate, from which the direction can be read earlier. The CPI is the number the Fed uses to justify its policy.
Zones of the annual rate
| Range | Rating | Color |
|---|---|---|
| below 0% | Deflation | blue |
| 0 to below 2.5% | In target range | green |
| 2.5 to below 5% | Elevated | amber |
| from 5% | Overheated | red |
The line at 2.5% is bold; reference lines are at 0 and 5%. Above 5% the background is tinted red, below 0 blue. The zones only color the annual rate; the core rate is light green, the three-month rate gray.
The boundary is at 2.5% and not at the Fed's 2% because the Fed's target is based on a different price index, the personal consumption expenditures (PCE) deflator. The CPI has always run a few tenths above it. A CPI of 2.5% is therefore what an economy on target looks like.
How to read it
- Annual rate: the level of inflation. It carries eleven old months with it and therefore turns late.
- Core rate: without the volatile prices for food and energy. It shows the underlying price pressure the Fed goes by.
- Three-month rate: the direction. If it is below the annual rate, inflation is currently cooling, and the annual rate is likely to follow in the coming months. If it is above it, inflation is accelerating.
Falling inflation makes rate cuts more likely and usually supports risk assets; rising inflation has the opposite effect.
Good to know
- Reference month and release: Each value sits on its reference month, but only comes out about two weeks after that month ends. The latest month is therefore often missing at the right edge, and in the history each value already appears from the first of its reference month.
- Seasonal adjustment: The adjusted version is slightly revised retroactively each year. The three-month rate for past months can therefore shift by tenths.
- All three series are required: If one is missing, the pane stays empty.
- Timeframe: A monthly series. Intended for 1D, 4D and 1W.