The rate and the level
Imagine a basket that costs $100. If prices rise 10%, it costs $110. If inflation then slows to 2%, that same basket costs $112.20 the following year. Inflation fell, but the basket became more expensive. This is an illustrative example, not a forecast.
What CPI measures
The US Consumer Price Index tracks changes in prices for a weighted basket of goods and services bought by urban consumers. Your own spending mix can differ from that basket, so your personal experience of inflation may also differ.
Three numbers worth separating
Month-on-month inflation shows a recent change. Year-on-year inflation compares prices with a year earlier. Core CPI excludes food and energy to help examine underlying trends. Each answers a different question.
Why markets pay attention
Our reading: inflation surprises can change expectations for interest rates. That can affect bond yields, currencies and asset valuations. The market response depends on what investors already expected, not only whether the headline number went up or down.
Go to the source.
US Bureau of Labor Statistics · CPI questions and answersFederal Reserve · Inflation and employmentSources inform the factual explanations. Questions, examples and market interpretations reflect MoneyTalks’ educational framing.