Why Inflation Needs More Than One Lens

The latest inflation debate is not just about whether prices are rising too quickly. It is also about whether the standard measures are giving policymakers, banks, and households the clearest possible picture of what is actually happening. 

The June 10 Consumer Price Index reading showed annual inflation reaching 4.2%, a three-year high, with energy prices contributing to the increase. Excluding food and energy, CPI rose at a 2.9% annual pace. That split has renewed discussion about whether inflation should be reported in additional ways, including “trimmed” measures that remove more volatile categories. 

Gene Ludwig, former U.S. Comptroller of the Currency and a prominent voice on economic measurement, told ProSight that CPI can remain central while being supplemented by other measures that capture inflation from different angles. 

Here are some practical points: 

CPI has limits. Inflation measures such as CPI are “inherently imperfect,” Ludwig says. His concern is that relying too heavily on one flawed metric can distort decision-making. “Policymakers make better decisions when they have better information,” he says. 

Trimming volatile categories can be reasonable—but not sufficient. Approaches that trim more volatile components are grounded in “reasonable statistical and economic thinking,” Ludwig says. But he emphasizes that no one should treat them as the only answer. The goal is to broaden the analytical toolkit, not replace one single measure with another. 

The data problem cuts both ways.  Volatile categories such as oil may push up some inflation measures. But the opposite problem also matters: for many middle- and lower-income Americans, the cost of essential goods and services has risen faster than CPI suggests. “For the majority of Americans, inflation has been higher than the official numbers indicate,” Ludwig says. 

Essential costs deserve their own lens. The real cost picture facing households includes categories such as transportation and childcare. That matters because official headline numbers may not fully capture lived experience, especially when essential living costs rise faster than broader inflation measures. 

Better measurement can support better policy. The practical goal is to supplement CPI with additional measures, including trimmed inflation and indices focused on essential goods. A more nuanced view, Ludwig argues, could help the Federal Reserve better manage both parts of its dual mandate: price stability and employment. 

The takeaway: Inflation is too important to view through narrow data points. For banks, the value of alternative measures is not academic. A clearer view of household cost pressures can sharpen thinking about customers, credit, deposits, and the economic conditions shaping financial behavior.