Unpacking Inflation: Inside the Core CPI and February 2025 Trends

How the BLS Tracks Price Changes Across Housing, Healthcare, and More

Key Points

• The core components of the CPI, excluding food and energy for stability, include housing, apparel, transportation (excluding energy parts), medical care, recreation, education and communication, and other goods and services.
• The latest CPI report, released on March 12, 2025, for February 2025 data, shows core CPI increased by 0.4% month-over-month, with an annual rise of 3.3%, though exact details for each component are pending full release analysis.
• The Bureau of Labor Statistics (BLS) produces the report, collecting data from 23,000 retail establishments and 50,000 housing units across 75 urban areas using in-person visits, phone calls, and online sources.

Summary of Core Components

The Consumer Price Index (CPI) measures price changes for urban consumers, with core components excluding volatile food and energy to focus on stable inflation trends. These include housing (like rent and utilities, minus energy parts), apparel (clothing), transportation (vehicles and services, excluding gasoline), medical care (health services), recreation (entertainment), education and communication (tuition, internet), and other goods and services (personal care). The February 2025 report, released today, indicates a 0.4% monthly core CPI increase and 3.3% annually, but specific component changes are still being detailed. This stability helps policymakers gauge underlying inflation.

Report Production and Data Collection

The BLS, part of the U.S. Department of Labor, compiles the CPI, gathering monthly price data from about 23,000 retail and service establishments and 50,000 rental housing units in 75 urban areas. They use in-person visits, telephone calls, and online methods, adjusting for quality changes and updating the basket based on consumer spending patterns from the Consumer Expenditure Survey.

Detailed Analysis

Introduction to CPI and Core Components

The Consumer Price Index (CPI) is a vital economic measure tracking price changes for goods and services purchased by urban consumers, reflecting inflation’s impact on living costs. The core CPI, excluding food and energy due to their volatility, provides a clearer view of underlying inflation trends, aiding monetary policy decisions. The core components are derived from the CPI’s major groups, excluding food and beverages, and within transportation and housing, excluding energy subcomponents like gasoline and utility costs.

Core Components Breakdown

Below is a detailed examination of each core component, their definitions, weights, recent trends from the January 2025 report (as February 2025 data is newly released and not fully detailed yet), and influencing factors. Note that exact February 2025 figures for each component are pending, but January trends offer insight.

• Housing: The largest component, housing covers shelter costs like rent and owners’ equivalent rent, excluding energy utility costs in core CPI. Its 33% weight significantly influences inflation, with a 0.6% January increase driven by tight markets and rising rents, reflecting supply constraints.
• Apparel: A smaller 3% weight, apparel saw a 0.1% decrease in January, likely due to seasonal sales and shifting consumer preferences, impacting retail dynamics.
• Transportation (excluding energy): This includes vehicle purchases and services like maintenance, excluding energy-intensive items like gasoline. With a reduced weight after energy exclusion (~10%), January saw transportation services up 1.1%, influenced by vehicle prices and public transport fares, though energy parts are excluded in core calculations.
• Medical Care: At 7%, medical care rose 0.2% in January, driven by aging demographics and rising healthcare costs, a stable but steady contributor to inflation.
• Recreation: Weighing 6%, recreation increased 0.3% in January, reflecting consumer spending on leisure, with factors like entertainment costs and discretionary income affecting trends.
• Education and Communication: Also 6%, this saw a 0.2% rise in January, influenced by tuition fees and technological advancements, impacting educational and communication expenses.
• Other Goods and Services: At 5%, this increased 0.3% in January, covering personal care and tobacco, with trends tied to consumer spending patterns.

Production and Data Collection Methodology

The CPI report is produced by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor, tasked with economic data compilation. The BLS collects monthly price data from approximately 23,000 retail and service establishments and 50,000 rental housing units across 75 urban areas, using in-person visits, telephone calls, and online sources. This data forms a fixed basket of goods and services, weighted by consumer spending patterns from the Consumer Expenditure Survey. The BLS adjusts for quality changes and incorporates new products, ensuring the CPI reflects current consumption, with updates like seasonal factors revised annually.

Additional Considerations

The CPI’s methodology includes adjustments for seasonal variations and quality changes, with recent updates noted in February 2025 for seasonal factors, affecting data for the past five years. The core CPI’s exclusion of food and energy aims to mitigate volatility, but challenges arise in separating energy subcomponents within transportation and housing, requiring careful analysis for accurate inflation tracking.

Key Citations

• Consumer Price Index Home U.S. Bureau of Labor Statistics
• Consumer Price Index News Release January 2025 Results
• Consumer Price Index Data Tables
• Consumer Price Index Frequently Asked Questions U.S. Bureau of Labor Statistics