how is the consumer price index cpi used 
the cpi is widely used by financial market participants to gauge inflation and by the federal reserve to calibrate its monetary policy businesses and consumers also use the cpi to make informed economic decisions since cpi measures the change in consumers purchasing power it is often a key factor in pay negotiations the fed uses cpi data to determine economic policy with a target inflation rate of 2 the fed may enact expansionary monetary policy to stimulate the economy should market growth slow or enact contractionary monetary policy should the economy and therefore prices grow too quickly in response to higher than desired inflation rates via the cpi the fed adjusts the fed funds rate 11the cost of living adjustments colas based on the cpi affect federal payments to the approximately 70 million americans receiving social security and supplemental security income ssi benefits they also apply to federal pension payments school lunch subsidies and income tax brackets 27mortgage rates and other forms of long term debt are often impacted by rates set by government agencies as the cpi increases and the government enacts policy changes to slow inflation rates often increase on the other hand landlords may use cpi information to adequately assess what annual rent increases for renters should be 1213financial market prices are driven by countless factors one such factor is the cpi as reactionary fed policies directly impact economic growth corporate profits and consumer spending ability 2a higher cpi often means that a less stringent government policy is generally in place this means that debt is often easier to obtain for cheaper and that individuals have greater spending capacity on the other hand lower or decreasing cpi may indicate that the government may ease policies that help boost the economy the cpi and its components are also used as a deflator for other economic indicators including retail sales and hourly weekly earnings to separate fundamental change from that reflecting change in prices employees may turn to cpi reports when approaching their employers for a raise based on nationwide increases in labor rates as well as pricing 14be mindful that the cpi is published using national data even though employees may be more suited to using local data to better understand their specific situation in addition some workers covered by collective bargaining agreements may have their contracts and wages tied to changes in cpi the bls reports the cpi on a fixed monthly basis a schedule of prior and future releases can be found on the bls website and the cpi is always released at 8 30 a m eastern time 15consumer price index cpi vs unemploymentin the broadest sense the cpi and unemployment rates are often inversely related this is not always the case in every economy but the federal reserve often attempts to decrease one metric while balancing the other for example in response to the covid 19 pandemic the federal reserve took unprecedented supervisory and regulatory actions to stimulate the economy 16as a result the labor market strengthened and returned to pre pandemic rates by march 2022 however this stimulus has resulted in the highest cpi calculations in decades 17as a result of higher than targeted cpi calculations the federal reserve began raising interest rates and tapering certain asset purchases on the one hand these measures aim to slow economic growth make it more expensive for consumers to acquire debt and stem monetary supply growth 18on the other hand these additional expenses may burden households and make companies less profitable all else being equal when the federal reserve attempts to lower the cpi it runs the risk of unintentionally increasing unemployment rates critiques of consumer price index cpi methodologybecause the cpi index is so crucial to economic policy and decision making its methodology has long been controversial drawing claims it either understates or overstates inflation a panel of economists commissioned by congress to study the issue in 1995 concluded the cpi overstated inflation and was followed by calculation changes to better reflect substitution effects 19critics claim that adjustments for changes in product quality and features understate the cpi according to the bls the particularly controversial hedonic adjustments which use regression techniques to adjust prices for new features on a relatively small proportion of the cpi items have a net effect close to zero on the index 20as the traditional cpi u calculation only measures inflation for urban populations it remains a less than reliable source of data for individuals living in rural areas the cpi does not explicitly state how different demographics may be impacted by inflation for example soaring education costs may adversely impact younger individuals while the impact of increasing elderly care costs is felt by a different group of individuals this notion is also widely attributable to individuals with varying degrees of income for example lower income individuals who contribute more gross income towards necessities of shelter and food will skew differently than households with larger disposable income for this reason the cpi may not adequately reflect each individual s experience about costs and changes over time 