Inflation, One Grocery Bill at a Time
What the consumer price index tracks, and what it cannot
Sample Written to show what this site can do.
Inflation is the rate at which the price of a typical basket of goods rises. The consumer price index1 tracks that basket: food, rent, fuel, clothing, medical care and hundreds of other items, weighted by how much households spend on each.
The number behind the headlines
For most of the 2010s inflation stayed near two percent. It climbed sharply in 2021 and peaked in 2022 at about eight percent, the highest in four decades.
Your own inflation rate depends on what you buy, not on the average.
Why your bill feels different
The index is an average.1 If rent and fuel are a large share of your spending, your personal inflation rate can be far higher or lower than the headline.
How the central bank responds
When inflation runs hot, the Federal Reserve raises its policy rate to cool demand. The response in 2022 was the fastest in decades.
Read with What GDP Actually Measures for the output side, and continue to Why Markets Don’t Wait for the Data.
Footnotes
Someone who rents and drives a lot felt 2022 very differently from someone who owns a home outright and works remotely. ↩
Sources
- Bureau of Labor Statistics “consumer price index” bls.gov
- U.S. Bureau of Labor Statistics, via FRED (CPIAUCSL) fred.stlouisfed.org
- Board of Governors of the Federal Reserve System, via FRED (FEDFUNDS) fred.stlouisfed.org