US Inflation

The CPI (Consumer Price Index) measures the average change in prices of the American household consumption basket. It is published monthly by the BLS, around mid-month.

YoY = year-over-year change in %. Index = the absolute index level (1982–1984 = 100). Higher inflation typically pushes the Fed toward higher rates.

The year-over-year number has a built-in trap called the base effect: it falls even while prices keep rising — all it takes is for them to rise more slowly than in the same month last year. “Inflation fell to 3 %” therefore does not mean anything got cheaper, only that it got more expensive more slowly. The absolute index level has no such illusion: it only turns down in genuine deflation, which shows up in the data once every few decades.

Core inflation (excluding food and energy) is not an attempt to hide the expensive items but to filter out the most volatile ones — oil alone can swing the headline number by a full percentage point in either direction. That is why the Fed watches core, and when headline and core diverge, core usually decides.