Each month, the U.S. Bureau of Labor Statistics (BLS) releases an estimate of the level of the consumer price index (CPI) and the rate of inflation in the United States for the previous month. The report provides the most recent current and seasonally adjusted consumer price indexes for all urban consumers, urban wager earners, and the chained index, plus a breakdown by major expenditure groups. The BLS also collects price level data for major metropolitan areas and regions.

This lesson focuses on the April 14, 2010, BLS press release of data on the consumer price index for the month of March, 2010.


  • Identify the current rate and recent changes in the consumer price index.
  • Identify the factors that have influenced recent changes in the rate of inflation.
  • Identify the potential policy implications of the current economic conditions, including deflation.
  • Describe how inflation and deflation impact individuals, families, and different groups in the economy.


Should We Worry about Inflation?

  • Inflation erodes purchasing power. You pay more for the same goods and services.
  • Inflation increases the costs of investments. Assets are worth less over time.
  • Inflation decreases the real value of money. Your savings will buy less in the future.
  • Inflation creates uncertainty. Uncertainty makes financial planning more difficult and risky.
  • Inflation changes behaviors. If people expect inflation, they may spend now rather than later.
  • Inflation transfers wealth from lenders to debtors.

Consumer prices in the United States increased just 0.1% March. It was a good month for consumers, unless you happen to purchase a lot of fresh fruits and vegetables. Bad weather increased fresh fruit and vegetables prices by 4.6% in March. The price of tomatoes increased over 15 percent in March.

The core CPI, which excludes food and energy prices, saw no change in March. Overall energy prices did not change in March. Since March, 2009, the CPI-U has increased by just 2.3%, and the core CPI-U is up only 1.1% in the past year. This was the smallest one year core CPI-U increase since January 1966.

Should we worry about inflation? When the global economy recovers and consumer demand for goods and services increases along with greater demand for productive resources of all kinds, perhaps inflation will return.

U.S. Bureau of Labor Statistics: Consumer Price Index – March 2010

April 14, 2010

The April 14 Bureau of Labor Statistics news release read, “On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the index increased 2.3 percent before seasonal adjustment.”

“The seasonally adjusted increase in the all items index was mostly due to an increase in the fresh fruits and vegetables index, which rose 4.6 percent in March and accounted for over 60 percent of the all items increase. Other food at home indexes were mixed and the index for food away from home was unchanged.”

“The index for energy and for all items less food and energy were both unchanged in March. Within energy, an increase in the electricity index was offset by declines in the indexes for gasoline and natural gas. Within all items less food and energy, the indexes for medical care, new vehicles, and used cars and trucks posted increases, while the indexes for shelter, household furnishings and operations, and apparel declined.”

The not seasonally adjusted CPI-U increased to a level of 217.631 in March, meaning that the market basket of goods and services that cost $100 in 1982-84 now costs the consumer $217.63.

Figure 1:  Percent Changes in the CPI for All Urban Consumers (CPI-U)
U.S. City Average
(Seasonally adjusted changes from the preceding month)
Spending Category January
12 mos. ended
March 2010
All items  .2  0  .1  2.3
   Food  .2  .1  .2  .2
      Food at home  .4  .1  .5  -.7
      Food away from home (1)  .1  .1  0  1.2
   Energy  2.8  -.5  0  18.3
      Energy commodities    4.9  -1.3  -1.0  39.6
      Gasoline (all types)  4.4  -1.4  -.8  41.4
      Fuel Oil (1)  6.1  -2.4  .7  27.2
   Energy Services  0  .5  1.4  -1.8
   Electricity  -1.1  -.5  2.1  -.5
   Utility (piped) Gas Service  3.5  3.9  -.7  -5.5
All Items Less Food & Energy  -.1  .1  0  1.1
   Commodities Less Food/Energy  .1  -.1  -.1  1.9
   New Vehicles  -.5  .1  .1  3.0
   Used Cars & Trucks 1.5  .7  .5 16.3
   Apparel  -.1  -.7  -.4  -.4
   Medical Care Commodities (1)  .7  .8  .4  3.7
Services Less Energy Services  -.2  .1  .1  .8
   Shelter  -.5  0  -.1  -.6
   Transportation Services  -.3  .4  .4  .8
   Medical Care Services  .5  .4  .3  .8
(1) Not seasonally adjusted.    

Inflation has not been a significant concern in the United States in recent years. Just the opposite, some have feared the onset of “deflation,” a sustained period of price level decrease. More recently, a very moderate level of annual inflation has reoccurred. Figure 2, below, shows the monthly changes in the CPI-U (seasonally adjusted) from 2002 through March 2010. Note the six month long period of price level decreases in late 2008. At that time, some economists were concerned about the possibility of “deflation” and its potential harm. The few brief periods of price increases near the 1 percent annual rate and brief periods of decreases have been primarily associated with short-term energy price increases or decreases.

CPI Figure 2

Consumer Price Index Detailed Data for March 2010

Food Prices

”The food index rose 0.2 percent in March after rising 0.1 percent in February. The index for food away from home, which had increased every month since January 2003, was unchanged in March. In contrast, the index for food at home rose 0.5 percent, its largest increase since September 2008. The index for fruits and vegetables rose 3.4 percent due to the sharp rise in the fresh fruits and vegetables index. Other grocery store food groups registered only small changes in March. The meats, poultry, fish, and eggs index increased 0.2 percent, while the indexes for dairy and related products and for nonalcoholic beverages were unchanged and the indexes for cereals and bakery products and for other food at home declined slightly. The food index has risen 0.2 percent over the last 12 months, with the food at home index still down 0.7 percent over that period despite the March increase.”

Energy Prices

“The energy index, which fell 0.5 percent in February, was unchanged in March. The gasoline index declined for the second straight month, falling 0.8 percent. (Before seasonal adjustment, gasoline prices rose 4.5 percent in March and have increased 41.4 percent over the past 12 months.) The index for household energy rose in March, increasing 1.3 percent mostly because of a 2.1 percent rise in the electricity index. The fuel oil index rose 0.7 percent, but the index for natural gas declined 0.7 percent. Over the last 12 months the energy index has risen 18.3 percent.”

All items less food and energy

“The index for all items less food and energy was unchanged in March after rising 0.1 percent in February. The shelter index declined in March, falling 0.1 percent due to a 0.1 percent decline in owners' equivalent rent. The index for household furnishings and operations fell 0.4 percent in March, its ninth decline in the past 10 months. The index for apparel fell 0.4 percent and the recreation index declined 0.1 percent. In contrast to these declines, the medical care index rose 0.3 percent in March with the index for hospital services increasing 1.1 percent. The index for used cars and trucks continued to rise, increasing 0.5 percent, and the new vehicles index rose 0.1 percent.”

“Over the last 12 months the index for all items less food and energy has risen 1.1 percent, its smallest increase since January 2004. This is largely explained by the continued deceleration of the shelter index, which has now fallen 0.6 percent over the last 12 months.”

The BLS announcement included these notes about seasonally adjusted and unadjusted CPI data.

 “Because price data are used for different purposes by different groups, the Bureau of Labor Statistics publishes seasonally adjusted as well as unadjusted changes each month.”

“For analyzing general price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year--such as price movements resulting from changing climatic conditions, production cycles, model changeovers, holidays, and sales.”

“The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data also are used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index before adjustment for seasonal variation.”

The Not Seasonally Adjusted CPI Measures

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 2.3 percent over the last 12 months to an index level of 217.631 (1982-84=100). For the month, the index rose 0.4 percent prior to seasonal adjustment.”

“The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.0 percent over the last 12 months to an index level of 213.525 (1982-84=100). For the month, the index rose 0.5 percent prior to seasonal adjustment.”

“The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 2.5 percent over the last 12 months. For the month, the index increased 0.4 percent on a not seasonally adjusted basis. Please note that the indexes for the post-2008 period are subject to revision.”

Calculating Consumer Price Index Changes

Movements of the indexes from one month to another are usually expressed as percent changes rather than changes in index points, because index point changes are affected by the level of the index in relation to its base period while percent changes are not. The example below illustrates the computation of index point and percent changes.

Percent changes for 3-month and 6-month periods are expressed as annual rates and are computed according to the standard formula for compound growth rates. These data indicate what the percent change would be if the current rate were maintained for a 12-month period.

Index Point Change
CPI 202.416
   Less previous point  change 201.800
Equals index point change .616
Percent Change
Index point difference .616
Divided by the previous index 201.800
Equals 0.003
Results multiplied by one hundred 0.003 x 100
Equals percent change 0.3

  For more details about the March 2010 CPI data, see these BLS tables online:

The CPI is a “Weighted” Index

The CPI-U is a “weighted” index. A weighted index is one in which the component items are “weighted” according to some system reflecting their relative importance. In the case of consumer prices, not all categories of spending are equal. Typically, a family will spend far more of their income on housing than on food. Housing should have a greater “weight” when determining an index. The index should represent some standard group of items. In this case, the CPI is meant to represent the typical market basket of a typical urban consumer.

Figure 3, below, shows the weights of the major categories of items making up the CPI-U. Note how some categories (energy and other*) have changed greatly in price level since the base period of 1982-84. Other categories (apparel and recreation) have changed very little in their price level. The CPI-U for all items has increased from the base period when it was 100 by 116.33 percent.


Figure 3:  Consumer Price Index (CPI-U)
Weights and Index Levels by Category
March 2010
Spending Category Weight* Index Level
Food and beverage 14.8% 219.378
Housing 41.9%


Apparel 3.7% 122.073
Transportation 16.7% 192.130
Medical Care 6.5% 387.142
Recreation 6.4% 113.339
Education/Communication 6.4% 129.236
Other 3.5% 378.236
All Items 100% 217.631
*Category weights established as of December 2009

* The "other" category includes items such as tobacco products, personal care products and services, and other personal services.

Consumer Prices and Other Macroeconomic Data

Sometimes, it is instructive to find relationships between various macroeconomic data. These relationships may give us a broader picture of the economy. For instance, there is a general relationship between output (GDP) and employment. As GDP increases, employment tends to increase. In the past year, as real GDP decreased, the unemployment rate has increased. One piece of data may confirm the meaning of the other.

 Figure 4, below, illustrates four sets of macroeconomic data - CPI, unemployment, real GDP growth and the federal funds rate. Notice the long term relationship of periods of output growth and decline with the changes in the unemployment rate. This relationship makes sense as the number of employed is directly related to output. Some increase in output can be attributed to improvements in productivity, but growth is very much dependent on labor force growth and employment. From late 2008 through 2009, as U.S. real GDP declined, the unemployment rate increased substantially.

Figure 4:  Selected U.S. Macroeconomic Data
1999-March 2010
Year Real GDP
Fed Funds
Rate Target
1999 4.5 4.2 2.2 4.75
2000 3.7 4.0 3.4 6.00
2001 0.8 4.3 2.8 5.00
2002 1.6 5.7 1.6 1.75
2003 2.6 5.9 2.3 1.00
2004 3.6 5.8 2.7 1.00
2005 2.9 5.2 3.4 2.75
2006 2.8 4.7 3.2 4.75
2007 1.0 4.4 2.8 5.25
2008 1.1 5.1 3.8 2.25
2009 -2.4 8.5 1.8 0 to .25
2010 NA* 9.7** 0*** 0 to .25

* 2010 Q1 real GDP data is not yet available
** 2010 unemployment is the montly average January - March
*** 2010 CPI-U data is January - March

Business Cycles

Business cycles or periodic fluctuations in growth and employment illustrate the relationships of some data (see Figure 4). When the National Bureau of Economic Research (NBER) tracks cycles in order to identify recessions, they use the combination of employment, GDP growth and other factors. How do consumer prices fit into this analysis? The NBER uses real GDP growth and real personal income as primary factors identifying business cycles. Using employment and income data adjusted for inflation allows the NBER to make more accurate comparisons from one data period to the next.

Review: The four phases of the business cycles are:Contraction - A slowdown in the pace or growth of economic activity, typically GDP and employment.

  • Trough - The lowest point of the business cycle or when a contraction reverses to expansion.
  • Expansion - A increase in the pace or growth of economic activity)
  • Peak (The upper point of the business cycle or when expansion reverses to contraction.

The NBER declared that the current recession began in December 2008, when a pattern of monthly job losses and slow economic growth began. Despite recent increases in GDP, the NBER has yet to recognize that the recession is over.

An April 11, 2010, New York Times article, "Recession Arbiters, Wary of Certifying an Upturn." by Sewell Chan and Louise Story reported an unusual mid-recession news release by the NBER responding to critics who suggest that the recession is over. "A committee of economists, charged with determining the official turning points in the nation’s business cycles, certifies the beginnings and ends of recessions. But this time, the committee members say, the evidence is not so easy to decipher."

"The committee plans to announce on Monday that it cannot yet declare an end to the recession that began in December 2007, several members indicated on Sunday. Such an acknowledgment is rare in the history of setting dates to business cycles and could affect the behavior of investors and consumers."

"Despite a recent uptick in employment and income, the decision of the committee at a meeting on Friday reflects a lingering worry that the economy could turn downward again in a so-called double-dip recession."

"Several economists on the committee, which has seven active members, said they considered such a turn to be unlikely. But, they said, the duration and severity of the contraction have made it hard to determine with authority that a recovery has begun."

"The gross domestic product, the broadest measure of economic activity, officially began rising in the second half of 2009, suggesting that a recovery might have quietly started. But the committee takes other factors into consideration, like employment trends and consumer confidence."

Inflation and GDP

Accurate measurement of gross domestic product or GDP growth is also dependent on the accurate measurement of inflation. A rise in the price level "inflates" the measurement of GDP growth - miscalculating real growth in the economy. A more meaningful measurement of the growth of output is real GDP - the nominal GDP measurement adjusted for the impact of inflation. Although CPI is the most common measurement of inflation for many uses, the adjustment of GDP uses a process based on the GDP deflator.

Both the CPI and the GDP deflator are measurements of average prices, but the GDP deflator includes all of the goods and services produced in the economy, not just the CPI market basket. The GDP is the market value of all goods and services produced in a year. Real GDP is the market value of those goods at a constant price level. Measuring the nation's output in a year at a constant price level means that you can accurately compare it to the output in another year.

CPI vs. GDP Deflator as Measures of Inflation

The rate of inflation rate determined by the CPI and GDP deflator are normally quite similar. Since the CPI uses a fixed market basked of goods and services, it assumes a fairly constant pattern of consumer purchases. Over time, the market basket may be changed, based on changes in consumer behavior. The GDP deflator uses a flexible basket of goods and services based on the actual quantities of goods and services produced in a year, while the prices of the goods and services are fixed. The GDP deflator uses a much larger quantity of goods and services.

The CPI does not take into account substitution - the tendency of consumers to choose lower priced goods in place of more expensive ones. Just the opposite sometimes happens, as consumers may choose to purchase more expensive goods as their incomes increase. The GDP deflator can take these substitutions into account. Because the GDP deflator assumes substitutions, it may underestimate the impact of inflation when consumers do not (are not able to) substitute. The CPI may overestimate the impact of inflation when consumers do substitute.

Most government agencies and many private contracts use the CPI to determine a cost of living adjustment (COLA). The Social Security Administration added a 5.8 percent COLA to Social Security benefits and SSI payments in January 2009, based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2007 to the third quarter of 2008.

For 2010 there will be no automatic cost-of-living adjustment. The Social Security Administration made this announcement on October 15, 2009, about the COLA for 2010. “With consumer prices down over the past year, monthly Social Security and Supplemental Security Income benefits for more than 57 million Americans will not automatically increase in 2010. This will be the first year without an automatic Cost-of-Living Adjustment (COLA) since they went into effect in 1975.”

Inflation and Unemployment

Long-standing economic theory had assumed that there is a predictable trade-off between the impact of public policy decisions and economic change on inflation and unemployment. This theory, developed by New Zealand Economist William Phillips in 1958, was based on his observation of an inverse relationship between money wage changes (inflation) and unemployment in the British economy over a period of time. The "Phillips Curve" proposed that when unemployment is low, inflation tends to be high and when unemployment is high, inflation tends to be low.

The implication for policy makers was that "Keynesian" policies could be used to control unemployment and inflation. Increased spending can lower unemployment with the risk of a high rate of inflation. Policy makers face the Phillips Curve trade-off. Today, policy makers who propose to use monetary policy (lower interest rates) or fiscal policy (deficit spending) to stimulate the economy, and increase GDP and employment, are aware of its potential inflationary effect.

The Phillips Cure theory lost favor in the late 1980s when there were periods of both high unemployment and high inflation, followed in the 1990s by periods of low unemployment and low inflation. The Federal Reserve recognized the potential trade-off in its most recent monetary policy statement when it justified an aggressive stimulatory policy by saying that the current conditions did not include an inflationary threat. Low inflation provides room for aggressive policies to stimulate the economy. Should inflation become a real threat, the Fed may slow down growth of the money supply.

Monetary Policy and Macroeconomic Data

With very low inflation during the time of the recession, the Federal Reserve and other economic policymakers have not viewed inflation as a serious concern. Recent FOMC monetary policy announcements have reiterated this view and the committee has kept the federal funds rate at a record low level.

“The FOMC will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” (March 16, 2010, FOMC monetary policy announcement.)


Consumer prices in the United States increased just 0.1% March. It was a good month for consumers, unless you happen to purchase a lot of fresh fruits and vegetables. Bad weather increased fresh fruit and vegetables prices by 4.6% in March. The price of tomatoes increased over 15 percent in March.

The core CPI, which excludes food and energy prices, saw no change in March. Overall energy prices did not change in March. Since March, 2009, the CPI-U has increased by just 2.3%, and the core CPI-U is up only 1.1% in the past year. This was the smallest one year core CPI-U increase since January 1966.

Should we worry about inflation? 

Not yet!

What will happen if energy prices spike again?


Next, answer the question below on the interactive notepad.


  1. How important is it to adjust economic growth or income data for the effect of inflation?


The BLS tracks a variety of international data, including prices. Take a look at some of the international data.

Go to, "Consumer price indexes in nine countries, percent change from same period of previous year, 1995-2010."  Read the inflation data about the nine industrialized nations.

  • Do you see any patterns?
  • Which nations have had higher inflation rates than the U.S.? Lower rates?
  • What do you think may account for the differences?

Go to, "U.S. Import and Export Price Indexes, March 16, 2010 ."  Read about the price changes for U.S. imports and exports.

  • How much have import and export prices changed compared to U.S. domestic prices?
  • What imported goods have had the greatest price increases recently? Exports?
  • Which nations' goods have increased in prices the most? Least?