In the United States, the official measure of inflation is done by the Bureau of Labor Statistics (BLS). They track and record the price of over 200 goods and services each month. (If you are curious here is their list of goods and services tracked.)
They use this data to create what is commonly called the Consumer Price Index. (An index is like a ruler - a formal way to track the change in price of something - see what is an index for details.)
The Consumer Price Index, or CPI, that is most often referred to by the media is the The CPI for All Urban Consumers (CPI-U).
There is also the CPI-W which stands for the Consumer Price Index for Urban Wage Earners and Clerical Workers. This is the index used by social security to determine if those receiving social security get a cost-of-living adjustment each year.
These formal measures of inflation affect you in many ways:
- Your employer may use the CPI to determine the amount of a raise or cost-of-living adjustment you get.
- The IRS uses the CPI to make adjustments in the tax brackets, and to the amount you are allowed to contribute to IRAs, 401k plans and other retirement plans.
- The CPI is used to adjust the amount of income you earn that is subject to social security taxes.
- The social security administration uses the CPI-W to determine if a cost-of-living adjustment will be applied to those receiving benefits.
Next: Historical And Current Inflation Rates In The United States - 1973 To Current
