Income and the Consumer Price Index (CPI)

The Consumer Price Index (CPI), produced by the U.S. Bureau of Labor Statistics (BLS), measures the average change over time in the prices paid by consumers for a representative "basket" of goods and services. While the CPI primarily measures price change over time, it is profoundly linked to income through its use in cost-of-living adjustments and as a tool to measure purchasing power. The CPI translates nominal income into purchasing power, showing how inflation alters the true value of your money.

Key concepts

Nominal income: The actual dollar amount of money you earn (e.g., a paycheck) without accounting for changing prices.

Real income: Your nominal income adjusted for inflation. It measures how many goods and services your money can buy.

Purchasing power: The value of a dollar based on the amount of goods it can buy. When prices go up, purchasing power goes down. For more information, see the purchasing power and constant dollars factsheet.

Real income formula

Real income is calculated by adjusting nominal income for inflation using a price index, typically the CPI. To calculate how much money you need to maintain the exact same standard of living as the base year, economists use the following formula:

Real income = nominal income / (current year CPI / base year CPI)

This measures how much a given income can buy compared to the base period.

For example, nominal income is constant at $50,000 and the CPI-U U.S. city average index for all items increased 2.7 percent, as it did between December 2024 and December 2025(1.027), the corresponding real income is $50,000 /1.027 = $48,696.36.

How CPI and income interact

Measuring real growth: To understand if you are actually better off than in the past, economists divide nominal income by the CPI to find real income. If your wage goes up by 3 percent in a given year but inflation was 4 percent over the same period, your real income has decreased.

Cost of Living Adjustments (COLAs): Employers and the government use CPI data to increase wages and benefits to match inflation, protecting Americans' purchasing power over time. For more information see, the ‘Using the CPI’ section of the CPI questions and answers page.

Exclusions: Note that since the CPI is designed to track household consumption, it excludes income and social security taxes as well as all investment (stocks, bonds, life insurance, etc).

How to access CPI data:

Inflation calculator: You can see how inflation has affected the value of your income over the years by using the BLS Inflation Calculator.

Online database: Access monthly price data from the Bureau of Labor Statistics online database.

Additional information

Additional information may be obtained from the Consumer Price Index Information Office by email or calling 202-691-7000. Information on the CPI's overall methodology can be found in the BLS Handbook of Methods.