What it is
The Consumer Price Index measures the average change over time in the prices paid by urban consumers for a basket of goods and services. In the United States it is published monthly by the Bureau of Labor Statistics, usually mid-morning Eastern time, and it is one of the few scheduled releases that reliably moves every asset class at once.
How it works
The index is built from price collection across categories weighted by consumer expenditure surveys and is then seasonally adjusted. Headline CPI includes everything; core CPI excludes food and energy because those components are volatile and dominated by supply shocks. Shelter, measured largely through owners' equivalent rent, is the single largest component and responds to market rents with a lag of many months, which is why core readings can stay elevated long after the underlying pressure has faded.
How traders use it
Markets trade the surprise rather than the number. The reaction is driven by the deviation from consensus, transmitted first through rate expectations and then into currencies, equities and credit. Real yields, inflation breakevens and TIPS pricing all reference it directly, and the release is a scheduled volatility event that options markets price in advance.
Where it breaks down
The index has known measurement issues, including substitution and quality-adjustment biases and the lagging shelter component, and revisions to seasonal factors can change the recent path after the fact. A frequent error is conflating it with the Federal Reserve's target: the Fed targets two percent on the PCE price index, which uses different weights and a different treatment of health care and therefore typically runs a few tenths below CPI. Comparing one against the other's target is not a like-for-like comparison.
Educational reference. This entry describes how a concept is defined and used. It is not investment advice, not a recommendation, and not a signal. Any rule you build from it should be tested with realistic costs before it is traded, and no historical result guarantees a future one.