The Many Ways to Measure Inflation

It’s a little dizzying how many ways we estimate inflation in the US.

There’s one measure that looks at consumer inflation, but it draws a distinction between professional work and hands-on work. It also has a way to measure inflation for the elderly.

Meanwhile, the Federal Reserve has its own “preferred measure of inflation,” which many people never heard about until recent years.

So, which one is the most important one to follow?

We believe there is only one measure that’s important—that’s the inflation you’re experiencing. If what you are buying most is going up in price, your portfolio needs to take that into consideration. If you’re not seeing many price changes, that’s great news today—but we need to be prepared for what may lie ahead.

“You have sown much, and harvested little. You eat, but you never have enough; you drink, but you never have your fill. You clothe yourselves, but no one is warm. And he who earns wages does so to put them into a bag with holes. ‘Thus says the Lord of Hosts: Consider your ways.’” Haggai 1:6-7

Measuring Inflation

Consumer Price Index: The CPI is the most used measure of inflation. It’s the one you’re likely to hear about the most. Within the CPI is the CPI-U, which looks to measure the price changes in a basket of goods and services used by professionals and the self-employed.

There’s also the CPI-W, which looks to measure inflation for construction and manufacturing workers, and CPI-E, which looks to represent people aged 62 and older. Some have argued that Social Security cost-of-living adjustments should be based on the CPI-E, but currently Social Security use the CPI-U.¹

Product Price Index: The PPI looks to measure what businesses (producers) pay when creating everything from raw materials to finished goods. Some believe that when the PPI changes, it can serve as an early indicator of potential changes in consumer prices.²

Personal Consumption Expenditure: The PCE is the Fed’s preferred measure of inflation. It was created in 1959, but it has become more popular in recent years as the Fed has grappled with inflation.

One reason the Fed likes the PCE is its ability to better account for consumer substitutions. For example, say you are at the grocery store, and you decide to buy steak instead of chicken because of price. The PCE is going to pick up on that substitution whereas the CPI isn’t as flexible.³

Inflation Nowcasting The Federal Reserve Bank of Cleveland sponsors the Inflation Nowcasting tool, which gives daily updates on inflation. On its website, the Cleveland Fed also gives estimates for monthly inflation—which, for some, is more valuable than waiting for the official monthly CPI update provided by the Bureau of Labor Statistics.⁴

On a month-to-month basis, the various inflation measures don’t vary too much. For example, in August 2025, the CPI-U showed annual inflation at 2.9%, while the PCE checked in at 2.7%. So, the difference comes down to what’s included and how it’s measured.^1,3

Which is exactly why we say that the most important inflation measure is what you’re experiencing. What “basket of goods” you buy is the only measure of inflation that matters to you, which means it’s the only one important to us.