"When is the next CPI report?" was a question no one was asking back in the days of 2% inflation readings.
Alas, those days are long gone. Inflation hit a four-decade high in 2022, prompting the Federal Reserve to embark on its most aggressive campaign of interest rate hikes since the late Carter and early Reagan administrations.
Though inflation peaked back in 2022, the implementation of price-raising tariffs and a resilient labor market have made the central bank reluctant to reduce interest rates further.
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Ease too soon, the thinking goes, and inflation could resurface, forcing the Fed to pivot back to rate hikes. Abrupt policy changes do not redound to the central bank's credibility.
That's why the Consumer Price Index, or CPI report, has become one of the stars of the economic calendar.
Markets desperately want the Fed to normalize borrowing costs. Lower rates today equal higher returns tomorrow, for one thing. There's also the fear that elevated rates could cause the economy to fall into a recession.
This explains the market's obsession with the next CPI report. And the one after that, and the one after that.
What is the CPI report?
The CPI report is released monthly by the Bureau of Labor Statistics, based on price data collected over the course of the month.
Per the BLS, prices for the goods and services used to calculate the CPI are collected in 75 urban areas throughout the country and from about 23,000 retail and service establishments.
Data on rents are collected from about 50,000 landlords or tenants. The weight for an item is derived from reported expenditures on that item as estimated by the Consumer Expenditure Survey.
The CPI report is broken down into many subcategories, but the two main ones you'll hear most about on CPI day are headline CPI and core CPI.
The headline number is the main inflation gauge. Core CPI excludes volatile food and energy prices, and is considered to be a better predictor of future inflation.
The data are expressed as percent changes and are measured both year over year and month to month.
"We eye U.S. CPI to see how inflation is evolving before new tariffs take effect," writes the team at BlackRock Investment Institute. "Core inflation is running too hot to fall back to the Fed’s 2% target."
CPI vs PCE
Although the inflation data will certainly influence what the central bank does at the next Fed meeting, the CPI report is not the Fed's preferred inflation gauge. Rather, the Fed sets its long-term 2% target based on data contained in the Personal Consumption Expenditures Price Index.
While it's true the two barometers correlate closely, they measure inflation differently. As James Bullard, former president and chief executive officer of the Federal Reserve Bank of St. Louis, explains:
The FOMC focused on CPI inflation prior to 2000 but, after extensive analysis, changed to PCE inflation for three main reasons: The expenditure weights in the PCE can change as people substitute away from some goods and services toward others, the PCE includes more comprehensive coverage of goods and services, and historical PCE data can be revised (more than for seasonal factors only).
There's more, but the bottom line is that the Fed believes the PCE index has some critical advantages over CPI when it comes to formulating monetary policy.
That said, CPI is the better known inflation gauge and is probably more relatable to what consumers experience in their daily lives.
Either way, the FOMC was quick to cut rates in late 2024 but appears likely to keep the federal funds rate unchanged when it next meets in June.
The next CPI report, which will be released ahead of the market open on Tuesday, May 13, will certainly factor into the central bank's thinking.
Barclays economists expect April CPI to be up 0.3% month over month and 2.3% year over year. Core CPI is forecast to rise 0.2% month over month and 2.8% year over year.
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