Macro Note 47
BLS says annual averages are the sum of 12 monthly index values divided by 12, and it also says that an annual average percent change should not be confused with an over-the-year change such as December to December. Two common inflation figures can answer different questions.
Why this note matters
Readers can use `inflation this year` as if it had only one valid calculation. BLS explicitly distinguishes annual-average percent changes from 12-month changes and says users should decide which one fits their purpose.
In its CPI calculations factsheet, BLS says annual averages are the sum of the 12 monthly index values divided by 12. On the same page, BLS explains that a 12-month percent change compares the same month in one year with that same month in the next year, such as December to December.
That means the two figures are built from different inputs even when both are used to summarize the same calendar year.
The same BLS factsheet says an annual average percent change should not be confused with the over-the-year percent change. It also says users should take care to examine whether the annual average or the 12-month percent change is more appropriate for their purposes.
BLS's questions-and-answers guidance reinforces that point by saying CPI contracts or escalation applications may use either a single month or an annual average as the reference period. The right measure depends on the decision the index is being used to support.
Market commentary often quotes one inflation number without clarifying whether it is a year-end change or an average-over-the-year measure. BLS's documentation shows why that shortcut can distort interpretation.
For Hynexly readers, the practical rule is simple: when someone says inflation was a certain number for the year, check whether they mean the annual average change or the 12-month December-to-December change before comparing it with other claims.
BLS explains 12-month CPI changes, annual averages, and the difference between annual-average percent changes and December-to-December changes.
Open sourceBLS explains that CPI users may specify either a single month or an annual average as the reference period depending on the use case, including escalation arrangements.
Open source