The Consumer Price Index (CPI) measures the average change in prices paid by consumers for a selection of goods and services. Beginning in January 2023, the CPI will update weights annually, instead of every two years, according to the U.S. Bureau of Labor Statistics website. This means the CPI will more accurately reflect inflation and market conditions.

                By                    Dawn Allcot

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The CPI measures the costs of different products and services — and the percentage change in those costs in different categories, including:

  • UtilitiesFoodGasolineShelterProfessional servicesClothing and apparelMore categories that reflect both luxuries and necessities

The CPI is a good gauge of how expensive it is to live in the U.S. or in specific regions or cities of the U.S. if you evaluate the data available for different locations.

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But the CPI affects customers in more ways, as well.

CPI and Social Security

This would give Social Security beneficiaries an average increase of roughly $144 per month in their checks. COLA increases go into effect with December 2022 Social Security payments.

CPI and SNAP Benefits

The CPI is also used to calculate and adjust SNAP benefits in line with inflation. People receiving SNAP EBT, formerly food stamps, will receive more money beginning in October. According to the Center on Budget and Policy Priorities website, maximum monthly SNAP benefits will increase by 12.5%. The SNAP increase was calculated based on food inflation between June 2021 and June 2022. Unlike the Social Security COLA, the SNAP increase only takes into account the CPI for food prepared at home, and weights certain items such as dairy, whole grains, and fruits and vegetables more heavily than other items.

CPI and Wages

Employers may also use the CPI to calculate wages and employee benefits. For instance, if the cost-of-living is rising, employers may opt to increase their retirement benefits or disability benefits for employees.

Employers who give workers an annual COLA raise will use the CPI numbers to determine the increase. If an employer does not provide an annual COLA raise, employees may use the CPI to negotiate for a salary increase. However, it’s important to enter negotiations emphasizing your accomplishments and the value you bring to the company, with the rising cost-of-living as more supporting evidence that a raise is due.

Some companies may use the CPI as a measure to increase employee wages across the board, apart from individual salary negotiations.

CPI as Overall Indicator of Where Your Money Goes

Businesses — including service professionals, retailers, and real estate developers, property managers, and landlords — often use the CPI to set prices.

As a consumer, if it feels like your money is not stretching as far as it was in the past, you can look at the CPI to evaluate where your money is going. Have you increased your lifestyle standards and let spending get out of control following the pandemic? Or has your salary just not increased at the same pace as inflation, so you are spending more money for the same things you’ve always purchased?

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You can use the CPI as a reality check for your own budget and determine if you need to ask for a raise to keep pace with inflation, take on a side gig or cut your spending in certain areas.