By the Numbers: The Consumer Price Index

Skyler King, HR Intern | Jun 2, 2017

The Consumer Price Index (CPI) measures the prices of goods and services households regularly purchase, like food and beverages, housing, transportation, medical care, and recreation, among other things. Collectively, these things are called the “Market Basket” whose prices are measured each quarter, and have been for over 100 years, to measure inflation that’s experienced by US households.

While the CPI is a de facto measure of inflation, it plays an important role outside of purchases on things like employee wages, taxes, retiree income, and even federal programs.

Employee Wages: Often times, when employees receive raises, the raise amounts are determined—formally or informally—by a cost-of-living adjustment, AKA the CPI. Since it’s used to determine the rate of inflation over a period of time, it additionally measures the cost-of-living households face. Next time you hear about the Consumer Price Index, it may help you figure out what to expect, or ask for, when it comes to raises.

Taxes: Like employers, the IRS uses the CPI to help determine the data’s impact on your paycheck. The IRS uses the CPI to determine if, and to what extent, the tax brackets should be adjusted to reflect the adjustment to the CPI—especially as it relates to those cost-of-living adjustments.

Retiree Income: The Social Security Administration uses The CPI to administer Social Security benefits to almost 48 million retirees. The CPI serves as a benchmark for any modifications that may need to be made to the fixed income of retired individuals. If the CPI increases 1.5%, it may mean the Social Security benefit raises 1.5% too.

Federal Programs: Many federal programs, like the National School Lunch Program, use the CPI data to determine the cost of the program and the amount of payments made to support the program. These changes may impact the real cost individuals face, say when purchasing a school lunch, or the amount of the federal budget allocated to support the program.

The Consumer Price Index certainly has more uses beyond the cost of goods and services, and may just have a positive impact on your take-home pay. If you’d like to read more about the CPI, its uses, and how it’s collected, visit the Bureau of Labor Statistics.

* We are thrilled you are looking to our Newsfeed as a source of current HR information - after all, The Employer Group is your Human Resource Resource. One of the best features about our News Feed is that the entries are timely. You get up-to-date information on what’s going on in HR, right now. The downside is that the law doesn’t always stay the same. That means we can’t guarantee you are getting the most up-to-date information when reading through past entries. Please don’t take our News Feed and rely on it as legal advice. As you know, The Employer Group does not provide legal advice. If you’ve got questions about an entry, give us a call. We are more than happy to assist.