Maintaining a stable and moderate level of inflation is important for a healthy economy. Therefore, it is useful to understand not only how headline inflation evolves, but also what drives it. To know why inflation changes in a given month, we need to look beyond the headline number.

To get a more complete picture of this development, the SF Fed details the contributing factors behind the consumer price index (CPI) in its new data page—Contributions to CPI inflation from goods and services.

Why jump into CPI inflation?

Measures of inflation differ mainly in how prices are calculated and what basket of goods and services is chosen to represent typical American household spending.

The Federal Reserve states that the Personal Consumption Expenditure Price Index (PCEPI) produced by the Bureau of Economic Analysis is the most consistent over the long term with its statutory mandate (Board of Governors 2024). In March, the San Francisco Fed launched a data page with a series of indicators disentangling the contributions of different groups of goods and services to PCEPI. However, the PCEPI is not the only measure of inflation that economists look at.

Another measure of inflation commonly used in the United States is based on the CPI, which is published monthly by the Bureau of Labor Statistics. The PCEPI and the CPI share many of the same characteristics as both are designed to track the prices of goods and services consumed by households and therefore include much of the same data.

However, the CPI differs from the PCEPI on several dimensions. The most significant difference is the share of each consumption basket that is taken up by various goods and services. In particular, the CPI places less weight on the cost of health care services than the PCEPI, but a higher weight on the cost of shelter (Cao and Shapiro 2013).

The evolution of CPI taxpayers

The new Contributions to CPI inflation from goods and services the data page provides monthly updates on the broad and granular categories of CPI inflation and highlights its biggest drivers.

The broad categories of goods and services in Figure 1 show that energy and food prices (light blue bars) contributed much of headline CPI inflation from early 2021 to early 2023. However, these contributions have down significantly since then as energy prices have generally declined from peaks in 2022 and food prices have risen at a relatively slower pace.

For most of the past two years, housing costs such as rent have become the largest contributor to year-on-year CPI inflation (closed blue bars). This reflects the fact that inflation in this category has remained high as inflation in other categories such as basic goods (eg used vehicles) has moderated significantly (gold bullion).

Figure 1
Contributions to total 12-month CPI inflation

Deepening into CPI Core Contributors

In addition to separating CPI inflation into these broad categories, the data page provides a more detailed breakdown of core CPI inflation, which excludes the volatile categories of food and energy. This granular breakdown allows us to see the specific contributions of goods and services that drove inflation up or down.

Figure 2 shows this breakdown of month-on-month core CPI inflation in October 2024, focusing on the five largest and five smallest contributors across 67 total subcategories. The remaining contributors not shown here are available in a downloadable data file on the data page.

Figure 2
Lowest and biggest contributor to core CPI inflation: October 2024

In line with Figure 1, we note that some of the biggest contributors to month-on-month core CPI inflation are related to housing services (blue bars). In October, lower prices for Internet services and some goods such as tech gadgets, jewelry and prescription drugs helped partially offset large monthly increases in contributions related to used vehicles, homes and other categories. services such as airline tickets and recreation. .

The new data page will be updated monthly shortly after Dissemination of CPI data by the Bureau of Labor Statistics.

reference

Board of Governors of the Federal Reserve System. 2024.”Statement on Long-Term Objectives and Monetary Policy Strategy.” Adopted in force on January 24, 2012; as reaffirmed in effect on January 30, 2024.

Cao, Yifan, and Adam H. Shapiro. 2013. “Why do inflation measures disagree?” FRBSF Economic Letter 2013-37 (December 9).