Inflation is one of those words everyone hears and almost no one feels they fully understand. It shows up in headlines, in election debates, and in the price of groceries, rent, and gas. Yet the number behind the headlines — the Consumer Price Index, or CPI — is often quoted without anyone explaining what it actually measures, how it is built, or what it means for your pay, your savings, and your borrowing costs.
This guide explains inflation in plain language: what it is, how the CPI is measured, what “headline” and “core” inflation mean, why prices rise, what the Federal Reserve watches, and how to read the next inflation report like an economist. It also includes the latest figures from the October 2026 CPI release, published today.
What inflation actually is
Inflation is a general rise in the prices of goods and services over time. It does not mean that every single price goes up. Some things get cheaper — used cars, for example, fell in price in October 2026 — while the overall level of prices still rises. Inflation is about the average, not about any one item on your receipt.
The practical effect is a fall in purchasing power. If prices rise 3 percent over a year and your pay rises only 1 percent, you can buy less with your income than you could a year earlier, even though your paycheck got bigger. If your pay rises faster than prices, your real income has grown. That comparison — prices versus pay — is why inflation matters far more than the number itself.
Deflation is the opposite: a general fall in prices. It sounds appealing, but economists generally regard sustained deflation as a problem, because it can discourage spending and make debts harder to repay in real terms. The US Federal Reserve aims for low, stable inflation rather than zero inflation or deflation, and it defines its longer-run goal as 2 percent annual inflation measured by a different index, the Personal Consumption Expenditures (PCE) price index.
What the CPI is and how it is measured
The Consumer Price Index is the best-known measure of US consumer inflation. It is published monthly by the Bureau of Labor Statistics (BLS), part of the US Department of Labor. The CPI measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
The basket is the key idea. Instead of tracking one product, the BLS tracks the prices of a representative set of things households actually buy: food, rent, clothing, transport, medical care, recreation, education, communication, and other goods and services. It prices the same kinds of items month after month, so movements in the index reflect changes in prices rather than changes in what people buy.
Prices are collected each month in 75 urban areas across the country, from about 6,000 housing units and approximately 22,000 retail establishments, including department stores, supermarkets, hospitals, and other service providers, according to the BLS technical note in its CPI release. All taxes directly associated with the purchase and use of items are included in the index. The spending weights — how much each category counts — come from the Consumer Expenditure Surveys, which record what households actually spend, and the BLS now updates those weights every year.
The headline index most often quoted is the CPI for All Urban Consumers, or CPI-U. The BLS says the CPI-U population represents over 90 percent of the total US population, covering almost all residents of urban or metropolitan areas. A narrower index, the CPI for Urban Wage Earners and Clerical Workers (CPI-W), covers about 30 percent of the population and is used for some purposes, including adjustments to Social Security benefits.
The index is expressed against a reference base: for most CPI series, the average of 1982–84 equals 100. In October 2026, the CPI-U stood at 337.511 on that base, which means the same basket cost roughly 3.4 times what it did in 1982–84. The inflation rate is the percentage change in that index — usually quoted as the change over 12 months, or as the change from the previous month.
Headline inflation vs. core inflation
When news reports say “inflation rose 0.4 percent,” they are usually quoting the headline CPI: everything in the basket, including food and energy. Core inflation is the same index with food and energy removed — formally, the index for all items less food and energy.
The reason for stripping those two categories out is volatility. Food and energy prices can swing sharply because of weather, harvests, wars, and commodity markets, and then reverse just as fast. A drought can push food prices up for a few months; an oil supply disruption can spike gasoline prices. Those swings are real costs for households, but they can mask the underlying trend in prices.
October 2026 update: what the BLS reported today
The Bureau of Labor Statistics released the October 2026 CPI on Tuesday, November 10, 2026, at 8:30 a.m. ET. The figures below come directly from that release, USDL-26-1685.
The headline CPI rose 0.4 percent in October on a seasonally adjusted basis, after rising 0.6 percent in September. Before seasonal adjustment, the all-items index rose 0.2 percent over the month, to 337.511. Core CPI — all items less food and energy — rose 0.3 percent in October, as it did in September and August, marking a third consecutive month at 0.3 percent.
Shelter was the biggest driver: the shelter index rose 0.3 percent in October and accounted for over 30 percent of the monthly increase in the all-items index, according to the BLS. The food index rose 0.5 percent, with food at home up 0.4 percent and food away from home up 0.5 percent. Energy rose 0.7 percent, a sharp slowdown from the 5.2 percent jump in September; gasoline rose 1.0 percent after advancing 9.1 percent the previous month, and electricity rose 0.9 percent. Recreation rose 0.8 percent, hospital services rose 0.8 percent, and motor vehicle insurance rose 0.7 percent. Among the few declines, used cars and trucks fell 1.2 percent.
There is one important gap in this release: the BLS did not publish a 12-month inflation rate for October 2026. The bureau said it “did not collect survey data for October 2025 because of a lapse in appropriations,” so it could not publish October 2025 indexes for most series and therefore cannot calculate 12-month percent changes for October 2026. That means there is no official year-over-year headline or core rate this month — do not treat the 0.4 percent monthly figure as an annual rate, and do not substitute September’s annual rate for October’s. The next CPI report, covering November 2026, is scheduled for Thursday, December 10, 2026.
Why prices rise
Inflation has no single cause, and economists argue constantly about which forces matter most at any given moment. But the main drivers are well understood, and most inflationary episodes involve some combination of them.
Demand-pull inflation happens when spending grows faster than the economy’s ability to produce goods and services. If more people want the same number of homes, cars, or restaurant tables, sellers can raise prices. Cost-push inflation happens when the cost of making things rises — wages, energy, raw materials, or shipping — and businesses pass those costs on to customers. Supply shocks are a sharper version of the same story: a war, a drought, a pandemic, or a shipping disruption can suddenly make key goods scarcer and more expensive.
Expectations matter too. If businesses and workers expect prices to keep rising, they set higher prices and demand higher wages in advance, which can turn a one-off price jump into a self-sustaining cycle. That is one reason central banks talk so much about keeping inflation expectations “anchored” — if people believe inflation will settle back to around 2 percent, they behave in ways that help make it true.
What the Federal Reserve watches — and what happens next
The Federal Reserve, America’s central bank, sets interest rates with the aim of keeping inflation low and stable while supporting maximum employment. Its main tool is the federal funds rate — the target range for the rate banks charge each other for overnight loans — which ripples through mortgages, car loans, credit cards, and savings accounts.
The Fed’s next decision comes at its December 8–9, 2026 meeting, with the announcement due at 2:00 p.m. ET on Wednesday, December 9. That meeting also brings new economic projections. The target range for the federal funds rate currently stands at 3.75 to 4.00 percent, set at the September 15–16, 2026 meeting and held there at the October 27–28 meeting. October’s CPI — the last inflation report before the December decision, since the November CPI is not released until December 10 — will feature heavily in the debate. For a fuller explanation of how the Fed works, see our guide: How Does the Federal Reserve Work? Interest Rates Explained.
It is worth remembering that the Fed’s 2 percent target is defined using the PCE price index, not the CPI. The CPI and the PCE usually move in the same direction but rarely match exactly, because they cover different baskets and weight them differently. A CPI reading above 2 percent does not by itself mean the Fed has missed its target, and a single month’s data never decides a rate move on its own.
What inflation means for your pay, savings, and borrowing
Inflation touches almost every household financial decision, often in ways that are easy to miss.
For pay, the question is whether your income keeps up. A raise that matches inflation leaves your purchasing power unchanged; a raise below inflation is a real pay cut, even if the number on your paycheck goes up. Many workers only discover this when they compare their salary with grocery and rent bills over a couple of years. If you are negotiating pay, knowing the CPI trend gives you a factual starting point — and our explainer on the monthly jobs report shows how wage data fits into the same picture: US Jobs Report Explained: What the Numbers Actually Mean.
Frequently asked questions
What is core inflation, and why does it exclude food and energy?
Core inflation is the CPI with food and energy removed. Those two categories swing sharply with weather, harvests, and commodity markets, so removing them gives a steadier read on the underlying price trend. Food and energy are still real costs — core is a diagnostic tool, not a measure of what you actually pay.
What was the October 2026 CPI?
The CPI rose 0.4 percent in October 2026 on a seasonally adjusted basis, after 0.6 percent in September, and core CPI rose 0.3 percent for a third straight month, according to the BLS release of November 10, 2026. No official 12-month rate was published because October 2025 price data were not collected during a lapse in appropriations.
Why does the Federal Reserve care about the CPI if its target uses the PCE index?
The Fed watches both. The CPI is timely, widely reported, and shapes public expectations, while the PCE index is the formal target because it adjusts more quickly when consumers change what they buy. The two usually move together.
Sources
- U.S. Bureau of Labor Statistics, “Consumer Price Index — October 2026” (USDL-26-1685), released November 10, 2026: BLS
- U.S. Bureau of Labor Statistics, CPI methodology and technical note in the October 2026 release: BLS
- Federal Reserve meeting calendar and target range 3.75–4.00%: Cleartape
- Federal Reserve December 8–9, 2026 meeting and September projections: YX Insights
- BLS CPI basket, weights, and headline vs. core explanation: CPI O Review