The Conversation

The consumer price index for all urban consumers is the measure of inflation that the Bureau of Labor Statistics uses to calculate real incomes. To arrive at this figure, the bureau averages the prices for a basket of goods and services. It then assigns weights to individual items based on their relative importance in terms of what average American consumers spend on things like food, housing and medical care.

The problem is that, in 2023, nearly 15% of all U.S. households, including 24% of those who rent, spent more than half of their income on housing. These 20 million American households, who the housing department considers severely cost-burdened, surely don’t have enough disposable income left over after paying for shelter to cover other basic necessities.

Virtually everyone spends money on housing and health care. But the consumer price index also takes into account items that not everyone has to spend money on at a given point in time.

For example, the index assumes that American households spend, on average, only 0.7% of household income on child care or preschool each year. For families with infants or toddlers, the reality is much grimmer. One 2024 survey put the average cost of child care at 24% of household income.

For all Americans facing the steep cost of medical care, and for those also paying for college or child care, wage growth has not kept up with their expenses