Educational information, not individual financial advice.
Key Takeaways
The Consumer Price Index (CPI) is the headline measure of inflation in the U.S. It is calculated monthly by the Bureau of Labor Statistics (BLS) and reported on a schedule that moves markets within seconds of release.
The BLS tracks the prices of a basket of roughly 80,000 items across categories like food, housing, apparel, transportation, medical care, recreation, and education. Prices are collected from stores, service providers, and landlords across 75 urban areas. Each category has a weight based on how much the average household actually spends on it.
Categorical weights (approximate, as of recent years):
The weights are updated periodically to reflect changes in spending patterns. When the BLS released 2023 weights, for example, they bumped up housing's share because rents had risen faster than other categories.
Headline CPI includes everything in the basket, including food and energy.
Core CPI excludes food and energy. It's reported because those two categories are extremely volatile — a cold winter spikes energy, a drought spikes food — and those short-term swings obscure the underlying inflation trend. The Fed focuses more on Core CPI (and a related measure called Core PCE) when setting policy.
Both are useful. For households, headline CPI is the more practical number because you actually pay for food and energy. For policymakers, core is more useful because it's less noisy.
In 2002 the BLS introduced a "chained" CPI (C-CPI-U) that accounts for substitution — if beef gets expensive and consumers switch to chicken, the traditional CPI assumes they keep buying beef at the higher price. Chained CPI captures the substitution and therefore reports lower inflation. Social Security COLAs are based on CPI-W (a variant), not chained CPI, so benefit increases tend to slightly outpace the chained measure.
CPI is an average. If your spending looks nothing like the average basket, your personal inflation will differ. Three common cases:
Retirees tend to spend more on healthcare than the CPI weights suggest. Healthcare inflation has historically run 2–3 percentage points higher than headline, so retirees often experience inflation higher than CPI.
Young renters in high-cost cities experience housing inflation that can dwarf CPI in boom markets. Rent growth of 8–10% in a year of 3% CPI is not unusual.
People who drive a lot feel energy price swings more than people who don't.
For planning purposes, Horizons assigns separate inflation rates to each expense category so your personal basket matters more than the national average.
CPI affects a surprising number of things:
A single CPI print can therefore change benefit payments for tens of millions of people.
The default inflation rates in Horizons are grounded in long-run CPI data, but adjusted for category-specific experience (healthcare runs hot, tech runs cold). Monte Carlo scenarios draw inflation from a distribution that matches historical volatility, so you can see how your plan handles high-inflation decades, not just average ones.
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