About inflation indicators
Inflation is the rate at which the general level of prices rises. The most familiar measure is the Consumer Price Index (CPI) from the Bureau of Labor Statistics, whose 12-month change is the headline inflation rate in the news. The Federal Reserve, however, defines its 2% target using the Personal Consumption Expenditures (PCE) price index from the Bureau of Economic Analysis, which covers more spending and usually runs a few tenths lower.
Each index also has a core version that drops food and energy, two categories driven by droughts, crop yields and the global oil market. Core inflation is the better guide to the underlying trend; headline inflation is what households actually experience at the store and the pump.
Further up the supply chain, the Producer Price Index (PPI) tracks the prices businesses receive for what they sell, an early read on cost pressures that can reach consumers later.
The last five charts break the CPI into the pieces that move it most. Shelter – rent and the rental value of owned homes – is about a third of the index and changes slowly. Groceries (food at home) and energy are the volatile parts that core inflation leaves out. Used cars and car insurance drove much of the 2021–2024 surge in goods and services prices.
Quick reading tips
- Inflation falling from 6% to 3% means prices are still rising, just more slowly.
- Core inflation turns later than headline because rents adjust slowly.
- PCE inflation is the measure behind the Fed's 2% target.
- Shelter inflation follows market rents with a delay of about a year.