The Consumer Price Index for All Urban Consumers (CPI-U) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It's the primary measure of inflation in the United States, affecting everything from Social Security payments to monetary policy decisions.
The CPI-U rose 2.7% over the 12 months ending in July 2025, showing continued but moderate inflationary pressure. On a monthly basis, the index increased 0.2% in July, seasonally adjusted. Core inflation (excluding food and energy) remains elevated at 3.1% annually, indicating broad-based price pressures beyond volatile food and energy sectors.
Federal Reserve Policy: With core inflation at 3.1%, well above the Fed's 2% target, monetary policy is likely to remain restrictive. The persistent elevation in core services inflation suggests underlying price pressures remain strong.
Consumer Impact: The 2.7% annual inflation rate means consumer purchasing power continues to erode, particularly impacting households with fixed incomes or those unable to achieve wage growth matching inflation.
Inflation affects different categories of goods and services differently. By examining category-level data, we can identify the primary drivers of overall inflation and understand which sectors are experiencing the most significant price pressures.
| Category | Weight in CPI | YoY Change | MoM Change (SA) | Trend |
|---|---|---|---|---|
| All Items | 100.0% | 2.7% | 0.2% | Moderate inflation continuing |
| Food | 13.6% | 2.9% | 0.2% | Above average, but moderating |
| Energy | 7.5% | -1.6% | -2.1% | Deflationary pressure |
| Shelter | 34.2% | 3.7% | 0.4% | Major inflation driver |
| Transportation | 15.8% | 1.8% | 0.0% | Stabilizing after volatility |
| Medical Care | 8.7% | 4.3% | 0.5% | Persistent high inflation |
| Recreation | 5.9% | 1.9% | 0.1% | Moderate increases |
Food prices are closely watched because they directly impact household budgets and are often more volatile than other categories. We analyze both "food at home" (groceries) and "food away from home" (restaurants) to understand different aspects of food inflation.
Overall food inflation remains elevated at 2.9% annually, above the headline inflation rate. The split between grocery and restaurant inflation reveals different underlying dynamics in the food sector.
Restaurant vs Grocery Gap: Restaurant food inflation (3.8%) significantly exceeds grocery inflation (2.2%), reflecting labor cost pressures and commercial real estate costs in the foodservice industry.
Protein Prices: Meat, poultry, fish, and eggs show elevated inflation at 3.5%, driven by ongoing supply chain challenges and higher feed costs.
Energy prices are among the most volatile in the CPI basket and have significant economic implications. Energy costs affect both direct consumer expenses and indirect costs through transportation and production.
Energy prices declined 1.6% over the year, providing deflationary pressure that helped moderate overall inflation. However, energy remains volatile with significant month-to-month variations.
Gasoline Deflation: The 2.2% decline in gasoline prices reflects increased global oil production and stable refinery operations, providing relief to consumers.
Natural Gas Surplus: Natural gas prices fell 8.4% due to abundant domestic supply and relatively mild weather reducing heating demand.
Electricity Inflation: Despite overall energy deflation, electricity costs rose 2.1%, reflecting ongoing infrastructure investments and the transition to renewable energy sources.