What inflation figures actually measure

A consumer price index tracks the cost of a representative basket of goods and services over time. Statistical agencies survey what households buy, assign weights to each category, collect prices, and publish the change. Every step involves methodological choices that shape the result.

Headline versus core

Headline inflation includes everything in the basket. Core inflation excludes food and energy, which are volatile and driven by supply shocks a central bank cannot influence. Policymakers watch core for the underlying trend while acknowledging that households experience the headline.

The measures that differ

• CPI in the United States, published by the Bureau of Labor Statistics.
• PCE price index, the measure the Federal Reserve references for its 2% objective.
• HICP, the harmonised index used across the EU and targeted by the ECB.
• CPI and CPIH in the UK, which differ in their treatment of owner-occupied housing.

These indices can diverge meaningfully because they weight categories differently and treat housing differently. Comparing a headline number from one country directly against another's is often comparing two different questions.

Quality adjustment and substitution

When a product improves, agencies adjust for the quality change so the index measures price rather than product. When a price rises and shoppers switch to alternatives, some indices account for that substitution. Both adjustments are defensible and both are contested, which is why methodology documentation is published in detail.