What Is Inflation?
Inflation is the rate at which the general level of prices for goods and services rises over time, reducing the purchasing power of each dollar. Measured primarily through the Consumer Price Index (CPI), inflation directly erodes household budgets — when prices rise faster than wages, families fall behind on bills, deplete savings, and accumulate debt, driving the financial distress the American Distress Index tracks.
Key Facts
- The Bureau of Labor Statistics measures inflation through the Consumer Price Index (CPI), which tracks price changes across approximately 80,000 items in 200 categories — the CPI-U (All Urban Consumers) covers about 93% of the U.S. population
- The all-items CPI inflation rate and the cumulative price level answer different questions. Grocery prices are 31.91% above January 2020 as of July 2026, based on the seasonally adjusted BLS Food-at-Home CPI
- The Federal Reserve targets 2% annual inflation using the PCE (Personal Consumption Expenditures) price index rather than CPI — when inflation exceeds this target, the Fed raises the federal funds rate, which increases mortgage rates and credit costs for households
- Core inflation (excluding volatile food and energy) is tracked separately because food and energy prices can spike temporarily — but for households in financial distress, food and energy are unavoidable expenses that consume a larger share of income
- Inflation reaches the ADI indirectly: cost-pressure measures such as CPI, healthcare CPI premium over core, auto insurance CPI premium, grocery cumulative price increases, and the wage-CPI spread are contextual evidence of the same budget squeeze the ADI captures through its Debt Burden domain (the total household debt service ratio) and its Safety Net & Buffer domain (the personal saving rate)
Live Data
How Is Inflation Measured?
The Bureau of Labor Statistics publishes both seasonally adjusted and not-seasonally-adjusted Consumer Price Index series. This site's current all-items rate is the year-over-year change computed from seasonally adjusted CPI-U series CPIAUCSL. The widely quoted June 2022 peak of 9.1% is the not-seasonally-adjusted 12-month headline that BLS published for that release. Seasonally adjusted history may be revised when BLS updates seasonal factors.
- CPI-U: The broad all-urban-consumer index used for the current rate on this page
- CPI-W: The wage-earner index used for Social Security cost-of-living adjustments
- Core CPI: An index that excludes food and energy
- PCE: A separate price index produced by the Bureau of Economic Analysis and used for the Federal Reserve's inflation target
Rate Versus Price Level
A lower inflation rate means prices are rising more slowly; it does not mean the price level returned to an earlier baseline. Grocery prices are 31.91% above January 2020 as of July 2026, based on the seasonally adjusted BLS Food-at-Home CPI. That figure is bound to the live cumulative series rather than typed as a permanent historical amount.
Inflation and the American Distress Index
CPI measures are contextual evidence rather than ADI inputs. When prices outrun income, required debt payments claim more of the budget and the savings cushion thins — pressure the ADI observes downstream through its Debt Burden and Safety Net & Buffer domains.
State-by-State Variations
While inflation is measured nationally, regional price levels vary significantly by metro area and state — driven by housing costs, energy prices, state taxes, and local market conditions.
| State | Key Difference | Guide |
|---|---|---|
| California | Los Angeles and San Francisco metro areas have their own CPI series, whose readings can differ from the national series because local spending and price patterns differ. | |
| Texas | Generally tracks national inflation closely but experienced outsized energy cost swings during the 2021 winter storm (Uri) and oil price volatility. No state income tax means households have more gross income but face property tax pressure. | |
| Florida | Above-average shelter inflation due to rapid population growth and insurance cost increases. Property insurance premiums have risen 40-60% since 2020, adding to effective household inflation beyond what CPI captures. | |
| New York | New York City metro area has consistently higher cost of living but inflation rates have roughly tracked national figures. State minimum wage increases ($16/hr NYC) partially offset price increases for lower-wage workers. |
Frequently Asked Questions
What is the current U.S. inflation rate?
As of July 2026, the annual CPI-U inflation rate is 3.3%, down from its mid-2022 peak. That peak is usually quoted as 9.1% in June 2022, the not-seasonally-adjusted CPI-U headline the BLS published at the time. The rate above comes from the seasonally adjusted series (CPIAUCSL), so it runs slightly below the figure most often cited. The Federal Reserve's 2% target has not yet been sustainably achieved.
Why do prices stay high even when inflation comes down?
Inflation measures the rate of price change, not the price level. A lower positive rate means prices are rising more slowly. Grocery prices are 31.91% above January 2020 as of July 2026, based on the seasonally adjusted BLS Food-at-Home CPI; that live cumulative reading may change as new months arrive or seasonal factors are revised.
How does inflation affect mortgage payments?
Fixed-rate mortgages are protected from inflation — your payment stays the same. But adjustable-rate mortgages (ARMs) rise when the Fed raises rates to fight inflation. New borrowers face higher rates. And inflation increases property taxes, insurance, and maintenance costs — even fixed-rate borrowers see their total housing cost rise.
What is the difference between CPI and PCE inflation?
CPI tracks prices paid directly by consumers. PCE (Personal Consumption Expenditures) is broader, includes employer-paid costs like health insurance, and uses different weights and substitution methods. The Fed prefers PCE; the two measures can differ, so a comparison should name its series and period rather than assume a fixed spread.
How does inflation connect to the American Distress Index?
Inflation reaches the ADI indirectly, through its Debt Burden and Safety Net & Buffer domains, as rising costs claim more of the budget and thin the savings cushion. When prices rise faster than wages, households deplete savings and fall behind on debts — surfacing in the Safety Net & Buffer and Delinquency domains.