Consumer Price Index For All Urban Consumers (CPI-U)

What Is the Consumer Price Index for All Urban Consumers (CPI-U)?

The Consumer Price Index For All Urban Consumers (CPI-U) measures the changes in the price of a basket of goods and services purchased by urban consumers. The urban consumer population is deemed by many as a better representative measure of the general public because most of the U.S. population — approximately 89% according to the U.S. Bureau of Labor Statistics — lives in highly populated areas.

Understanding the Consumer Price Index for All Urban Consumers (CPI-U)

The Consumer Price Index (CPI) is the most frequently used statistic for identifying inflation or deflation. The CPI-U only considers the prices paid for goods and services by those that live in urban areas. Rising CPI-U figures mean that the prices of goods/services within the urban population are becoming more expensive, and this may be a sign of rising inflation.

All variants of the CPI are similar to the cost of living indexes as they assess prices in the market based on the goods and services needed to achieve a given standard of living. Different measures of the CPI differ from the cost of living indexes because they do not account for changes in other facets of standard of living, such as changes in environmental factors.

The all-urban consumer population consists of all urban households in Metropolitan Statistical Areas (MSAs) and urban places of 2,500 inhabitants or more. Non-farm consumers living in rural areas within MSAs are included, but the index excludes rural consumers and the military and institutional population.

The CPI-U was introduced in 1978 and is representative of the buying habits of approximately 80% of the non-institutional population of the United States, compared with 32% represented in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The methodology for producing the index is the same for both populations.

Uses of the Consumer Price Index For All Urban Consumers (CPI-U)

The CPI-U is used to measure inflation and operates as an indicator of the effectiveness of government fiscal and monetary policy. Business executives, labor leaders, and other private citizens also use the CPI-U (and other CPI components) as a guide in making economic decisions. The CPI-U is also used to adjust other economic series for price change and to translate those series into inflation-free dollars.

The CPI-U and its other CPI components are also used as a means for indexing populations. For example, over 2 million workers are covered by collective bargaining agreements, which tie wages to the CPI or CPI-U. Changes in the CPI-U can also affect the cost of lunches for the 26.7 million children who eat lunch at school.

Some private firms and individuals use the CPI to keep rents, royalties, alimony payments, and child support payments in line with changing prices.