Monthly Inflation Brief
The Reality Index rose 4.95% year over year in May 2026, running 70 basis points hotter than the BLS headline CPI print of 4.25%. Since 1980, the Reality Index has risen 4.76× against CPI's 4.07× — a cumulative gap of 17.0%.
The Reality Index — a fixed-weight measure of the prices American households actually pay across ten categories of everyday spending — rose 4.95% in May 2026 compared with May 2025. The BLS Consumer Price Index for All Urban Consumers (CPI-U), unadjusted, rose 4.25% over the same period, up sharply from 3.81% in April. That acceleration in the official number was driven almost entirely by energy.
May was an energy month.
Groceries (+2.74%), dining out (+3.54%), discretionary spending (+2.62%), education (+2.63%), and pets (+2.63%) all printed in the mid-2% to mid-3% range.
The month’s clearest split — used cars
The government’s used-car index fell about 2% over the past year. The prices buyers actually met at auction rose about 3% — a swing of roughly five percentage points, pointing in opposite directions. Part of that gap is method: the official index marks vehicle prices down for the added equipment of newer model years (a hedonic quality adjustment), while Manheim records what the metal actually sold for. Manheim measures wholesale values, which lead the retail prices households eventually pay — so this reads as a forward signal, not a one-month quirk. A category where the official index and the transaction record move in opposite directions is exactly the kind of gap the Reality Index exists to surface.
The Reality Index typically runs well ahead of CPI. In May the gap compressed to 70 basis points — narrower than usual — and the reason is instructive. May's inflation was led by gasoline and energy, a category both measures track closely; when the dominant mover is something CPI captures as fully as the Reality Index does, the two converge. The Reality Index's persistent edge comes not from energy but from the categories where the official measure understates what households pay: a fixed-weight, tenure-based housing cost and health-care priced from what employers and families actually spend. In a month where energy does the heavy lifting, that structural edge is simply a smaller share of the story.
Since 1980, the Reality Index has risen 4.76× against CPI's 4.07×. As of May 2026 that is a cumulative gap of 17.0% — the distance between the official benchmark and what a fixed basket of everyday household costs has actually done over forty-five years.
Methodology notes
Weights. The Reality Index holds fixed 1980 expenditure weights across all years — a Laspeyres basket. It measures the cost of the same basket over time rather than reweighting toward how spending has shifted.
Housing. The housing bucket is tenure-weighted (roughly 65% owner / 35% renter). The renter portion is refreshed via Zillow ZORI; because Zillow publishes ZORI later in the month than the CPI release, this edition uses the most recent available ZORI reading (April 2026) as the renter proxy. The owner side is carried forward from the 2025 annual baseline. The full owner-cost model is documented at realityindex.co/housing.html.
Health care. The health-care bucket reflects the KFF Employer Health Benefits Survey, published annually each fall, and is carried forward between releases.
Education. Education is priced at published (sticker) tuition. A net-of-financial-aid alternative is under consideration as a user-selectable scenario.
Transportation. Transportation is priced with a dedicated Reality Index composite: used vehicles at Manheim auction values and new vehicles at Kelley Blue Book transaction prices, gasoline at the BLS average pump price, and the remaining components (insurance, maintenance, public transit, parts) from the matching CPI subindices. Because the official index applies hedonic quality adjustments to vehicles that transaction prices do not, transportation is now a category where the Reality Index diverges from CPI on its own data rather than tracking it.