CPI Inflation: How It's Measured, and What It Misses
A Basket, Priced Every Month
The Consumer Price Index tracks a fixed basket of goods and services - housing, food, transportation, medical care, and more - and reprices it every month. Each category gets a WEIGHT based on how much of a typical household's spending it represents, so a 10% jump in the price of housing (a huge weight in the basket) moves the index far more than a 10% jump in, say, postage stamps.
Real, sourced monthly figures: CPI year-over-year inflation ran 2.4% in January and February 2026, jumped to 3.8% in April and 4.2% in May, then eased to 3.5% in June - the first pullback since January. Source: U.S. Bureau of Labor Statistics, CPI News Releases, Jan-Jun 2026.
Two Real Limitations
Substitution bias: if beef gets expensive, people actually buy more chicken - but a naive fixed basket assumes they keep buying the same amount of beef anyway, overstating the true cost-of-living impact. Quality bias: if a laptop costs the same as five years ago but is twice as fast, is that zero inflation, or effectively a price DROP for the same performance? Statistical agencies adjust for this ("hedonic quality adjustment"), imperfectly, and it's a legitimate, ongoing source of debate about whether CPI slightly over- or understates true inflation.