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Frequently Asked Questions3. Whose buying habits does the CPI reflect? 4. Is the CPI a cost-of-living index? 5. Does the CPI measure my experience with price change? 6. How is the CPI market basket determined? 7. What goods and services does the CPI cover? 8. How are CPI prices collected and reviewed? 10. How are taxes treated in the CPI? 11. How do I read or interpret an index? 12. Is the CPI the best measure of inflation? 13. Which index is the "Official CPI" reported in the media? 14. What index should I use for escalation? 15. When should I use seasonally adjusted data? 16. What area indexes are published, and how often? 17. What area CPI should I use if there is no CPI for the area I live in? 18. Can the CPI's for individual areas be used to compare living cost among the areas? 19. What types of data are published? 20. What are some limitations of the CPI? 21. Will the CPI be updated or revised in the future? 22. How can I get CPI information? 1. What is the CPI?The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. 2. How is the CPI used?The Consumer Price Index affects nearly all Americans because of the many ways it is used. Three major uses are:
3. Whose buying habits does the CPI reflect?The CPI reflects spending patterns for each of two population groups: All Urban Consumers (CPI-U) and Urban Wage Earners and Clerical Workers (CPI-W). The CPI-U represents about 87 percent of the total U.S. population. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poor, the unemployed and retired persons as well as urban wage earners and clerical workers. Not included in the CPI are the spending patterns of persons living in rural non-metropolitan areas, farm families, persons in the Armed Forces, and those in institutions, such as prisons and mental hospitals. The CPI-W is based on the expenditures of households that are included in the CPI-U definition that also meet two requirements: More than one-half of the household's income must come from clerical or wage occupations and at least one of the household's earners must have been employed for at least 37 weeks during the previous 12 months. The CPI-W's population represents about 32 percent of the total U.S. population and is a subset, or part, of the CPI-U's population. 4. Is the CPI a cost-of-living index?The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. The Bureau of Labor Statistics (BLS or the Bureau) has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain "utility level" or "standard of living." Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would comprise a complete cost-of-living framework. More. 5. Does the CPI measure my experience with price change?Not necessarily. It is important to understand that BLS bases the market baskets and pricing procedures for the CPI-U and CPI-W on the experience of the relevant average household, not on any specific family or individual. It is unlikely that your experience will correspond precisely with either the national indexes or those for specific cities or regions. More. 6. How is the CPI market basket determined?The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. For the current CPI, this information was collected from the Consumer Expenditure Survey over the three years 1993, 1994, and 1995. In each of these three years, more than 5,000 families from around the country provided information on their spending habits in a series of quarterly interviews. To collect information on frequently purchased items such as food and personal care products, another 5,000 families in each of the 3 years kept diaries listing everything they bought during a 2-week period. Altogether, more than 30,000 individuals and families provided expenditure information for use in determining the importance, or weight, of over 2000 categories in the CPI index structure. 7. What goods and services does the CPI cover?The CPI represents all goods and services purchased for consumption by the reference population (CPI-U or CPI-W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows:
Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. The CPI also includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. However, the CPI excludes taxes (such as income and Social Security taxes) not directly associated with the purchase of consumer goods and services. The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. (These items relate to savings and not to day-to-day consumption expenses.) For each of the more than 200 item categories, BLS has chosen samples of several hundred specific items within selected business establishments frequented by consumers, using scientific statistical procedures, to represent the thousands of varieties available in the marketplace. For example, in a given supermarket, the Bureau may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds to represent the "Apples" category. 8. How are CPI prices collected and reviewed?Each month, BLS data collectors called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the United States to obtain price information on thousands of items used to track and measure price change in the CPI. These economic assistants record the prices of about 80,000 items each month. These 80,000 prices represent a scientifically selected sample of the prices paid by consumers for the goods and services purchased. During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of 8 when previously they had been sold by the dozen) of the good or service since the last time prices had been collected, the economic assistant selects a new item or records the quality change in the current item. The recorded information is sent to the national office of BLS where commodity specialists, who have detailed knowledge about the particular goods or services priced, review the data. These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments. These can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item's features or quality. Thus, the commodity specialists strive to prevent changes in the quality of items from affecting the CPI's measurement of price change. 9. How is the CPI calculated?The CPI is a product of a series of interrelated samples. First, using data from the 1990 Census of Population, BLS selects the urban areas from which prices are to be collected and chooses the housing units within each area that are eligible for use in the shelter component of the CPI. The Census of Population also provides data on the number of consumers represented by each area selected as a CPI price collection area. Next, another sample (of about 16,800 families each year) serves as the basis for a Point-of-Purchase Survey that identifies the places where households purchase various types of goods and services. More. 10. How are taxes treated in the CPI?Certain taxes are included in the CPI, namely, taxes that are directly associated with the purchase of specific goods and services (such as sales and excise taxes). Government user fees are also included in the CPI. For example, toll charges and parking fees are included in our transportation category; and an entry fee to a national park would be included as part of the admissions index. In addition, property taxes should be reflected indirectly in the BLS method of measuring the cost of the flow of services provided by housing shelter, which we call owners' equivalent rent, to the extent that these taxes influence rental values. Taxes not directly associated with specific purchases, such as income and Social Security taxes, are excluded, as are the government services paid for through those taxes. For certain purposes, one might want to define price indexes to include, rather than exclude, income taxes. Such indexes would provide an answer to a different question from the one for which the present CPI is relevant, and would be appropriate for different uses. 11. How do I read or interpret an index?An index is a tool that simplifies the measurement of movements in a numerical series. Most of the specific CPI indexes have a 1982-84 reference base. That is, BLS sets the average index level (representing the average price level)--for the 36-month period covering the years 1982, 1983, and 1984--equal to 100. The Bureau measures changes in relation to that figure. An index of 110, for example, means there has been a 10-percent increase in price since the reference period; similarly an index of 90 means a 10-percent decrease. Movements of the index from one date to another can be expressed as changes in index points (simply, the difference between index levels), but it is more useful to express the movements as percent changes. This is because index points are affected by the level of the index in relation to its base period, while percent changes are not. In the following table, item A increased by half as many index points as item B between Year I and Year II. Yet, because of the different starting figures, both had the same percent change; that is, prices advanced at the same rate. On the other hand, items B and C show the same change in index points, but the percent change is greater for item C because of its lower starting value.
Historically, BLS has updated its reference periods every 10 years or so. 12. Is the CPI the best measure of inflation?Inflation has been defined as a process of continuously rising prices, or equivalently, of a continuously falling value of money. Various indexes have been devised to measure different aspects of inflation. The CPI measures inflation as experienced by consumers in their day-to-day living expenses; the Producer Price Index (PPI) measures inflation at earlier stages of the production and marketing process; the Employment Cost Index (ECI) measures it in the labor market; the BLS' International Price Program measures it for imports and exports; and the Gross Domestic Product Deflator (GDP-Deflator) measures combine the experience with inflation of governments (Federal, State and local), businesses, and consumers. Finally, there are specialized measures, such as measures of interest rates and measures of consumers' and business executives' inflation expectations. The "best" measure of inflation for a given application depends on the intended use of the data. The CPI is generally the best measure for adjusting payments to consumers when the intent is to allow consumers to purchase, at today's prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period. It is also the best measure to use to translate retail sales and hourly or weekly earnings into real or inflation-free dollars. 13. Which index is the "Official CPI" reported in the media?Each month, BLS releases thousands of detailed CPI numbers to the media. However the media usually focuses on the broadest, most comprehensive CPI. This is "The Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items, 1982-84=100." These data are reported on either a seasonally adjusted, or not seasonally adjusted, basis. Often, the media will report some, or all, of the following:
14. What index should I use for escalation?The decision to employ an escalation mechanism, as well as the choice of the most suitable index, is up to the user. When drafting the terms of an escalation provision for use in a contract to adjust future payments, both legal and statistical questions can arise. While BLS cannot help in any matters relating to legal questions, it does provide basic technical and statistical assistance to users who are developing indexing procedures. More. 15. When should I use seasonally adjusted data?By using seasonally adjusted data, economic analysts and the media find it easier to see the underlying trend in short-term price change. It is often difficult to tell from raw (unadjusted) statistics whether developments between any 2 months reflect changing economic conditions or only normal seasonal patterns. Therefore, many economic series, including the CPI, are seasonally adjusted to remove the effect of seasonal influences. Seasonal influences are those that occur at the same time and in about the same magnitude every year. They include price movements resulting from changing climatic conditions, production cycles, model changeovers, and holidays. BLS annually re-estimates the factors that are used to seasonally adjust CPI data, and seasonally adjusted indexes that have been published earlier are subject to revision for up to 5 years after their original release. Therefore, unadjusted data are more appropriate for escalation purposes. 16. What area indexes are published, and how often?Besides monthly publication of the national (or U.S. City Average) CPI-U and CPI-W, monthly indexes are also published for the four regions--Northeast, Midwest (formerly North Central), South, and West. Monthly indexes are also published for urban areas classified by population size--all metropolitan areas over 1.5 million, metropolitan areas smaller than 1.5 million, and all nonmetropolitan urban areas. Indexes also are available within each region, cross-classified by area population size. For the Northeast and West, however, indexes for non-metropolitan areas are not available. BLS also publishes indexes for 26 local areas. Local area indexes are byproducts of the national CPI program. Each local index has a much smaller sample size than the national or regional indexes, and is, therefore, subject to substantially more sampling and other measurement error. As a result, local area indexes are more volatile than the national or regional indexes. Therefore, BLS strongly urges users to consider adopting the national or regional CPI's for use in escalator clauses. If used with caution, local area CPI data can illustrate and explain the impact of local economic conditions on consumers' experience with price change. Local area data are available on the following schedule. BLS publishes three major metropolitan areas monthly:
Data for an additional 11 metropolitan areas are published every other month [on an odd (January, March, etc.) or even (February, April, etc.) month schedule] for the following areas:
(Note: The designation even or odd refers to the month during which the area's price change is measured. Due to the time needed for processing, data are released 2 to 3 weeks into the following month.) Data are published for another group of 12 metropolitan areas on a semiannual basis. These indexes, which refer to the arithmetic average for the 6-month periods from January through June and July through December, are published with release of the CPI for July and January, respectively, in August and February for:
17. What area CPI should I use if there is no CPI for the area I live in?Although the BLS can provide some guidance on this question, users must make the final decision. As noted in the answers to Questions 14 and 16, BLS strongly urges the use of the national or regional CPI's for use in escalator clauses. These indexes are more stable and subject to less sampling and other measurement error than are local area indexes and, therefore, more statistically reliable. 18. Can the CPIs for individual areas be used to compare living costs among the areas?No, an individual area index measures how much prices have changed over a specific time period in that particular area. It does not show whether prices or living costs are higher or lower in that area relative to another. In general, the composition of the market basket and relative prices of goods and services in the market basket during the expenditure base period varies substantially across areas. More. 19. What types of data are published?There are many types of data published as outputs from the CPI program. The most popular are indexes and percent changes. Requested less often are relative importance (or relative expenditure weight) data, base conversion factors (to convert from one CPI reference period to another), seasonal factors (the monthly factors used to convert unadjusted indexes into seasonally adjusted indexes), and average food and energy prices. Index and price change data are available for the U.S. city average (or national average), for various geographic areas (regions and metropolitan areas), for national population size classes of urban areas, and for cross-classifications of regions and size classes. Indexes for various groupings of items are available for all geographic areas and size classes. There are individual indexes available for more than 200 items (e.g., apples, men's shirts, airline fares), and over 120 different combinations of items (e.g., fruits and vegetables, food at home, food and beverages, and All items), at the national or U.S. city average level. BLS classifies consumer items into eight major groups: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. (Some indexes are available as far back as 1913.) Each month, indexes are published along with short-term percent changes, the latest 12-month change and, at the national item and group level, unadjusted and (where appropriate) seasonally adjusted percent changes (and seasonal factors), together with annualized rates of change. These annualized rates indicate what the rate of change would be for a 12-month period, if a price change measured for a shorter period continued for a full 12 months. The answer to question 16 provides information about the areas and size classes for which indexes are published. For areas, BLS publishes less detailed groupings of items than it does for the national level. The following table illustrates this point:
Annual average indexes and percent changes for these groupings are published at the national and local levels. Semiannual average indexes and percent changes for some of these groupings are also published. Each month, BLS publishes average price data for some food items (for the U.S. and 4 regions) and for some energy items (for the U.S., 4 regions, 3 size-classes, 10 cross-classifications of regions and size-classes, and 14 metropolitan areas). 20. What are some limitations of the CPI?The CPI is subject to both limitations in application and limitations in measurement. Limitations of application The CPI may not be applicable to all population groups. For example, the CPI-U is designed to measure the experience with price change of the U.S. urban population and, thus, may not accurately reflect the experience of people living in rural areas. Also, the CPI does not produce official estimates for the rate of inflation experienced by subgroups of the population, such as the elderly or the poor. (BLS does produce and release an experimental index for the elderly population. However, because of the significant limitations of this experimental index, it should be interpreted with caution.) As noted in the answer to question 18, the CPI cannot be used to measure differences in price levels or living costs between one place and another; it measures only time-to-time changes in each place. A higher index for one area does not necessarily mean that prices are higher there than in another area with a lower index. It merely means that prices have risen faster since their common reference period. The CPI cannot be used as a measure of total change in living costs because changes in these costs are affected by (such as social and environmental changes and changes in income taxes) that are beyond the definitional scope of the CPI and so are excluded. Limitations in measurement Limitations in measurement can be grouped into two basic types, sampling errors and non-sampling errors. Sampling errors. Since the CPI measures price change based on a sample of items, the published indexes differ somewhat from what the results would be if actual records of all retail purchases by everyone in the index population could be used to compile the index. These estimating or sampling errors are limitations on the precise accuracy of the index, not mistakes in index calculation. The CPI program has developed measurements of sampling error, which are updated and published annually in the CPI Detailed Report. An increased sample size would be expected to increase accuracy, but it would also increase CPI production costs. The CPI sample design allocates the sample in a way that maximizes the accuracy of the index, given the funds available. Non sampling errors. These errors occur from a variety of sources. Unlike sampling errors, they can cause persistent bias in the index measurement. Non sampling errors are caused by problems of price data collection, logistical lags in conducting surveys, difficulties in defining basic concepts and their operational implementation, and difficulties in handling the problems of quality change. Non sampling errors can be far more hazardous to the accuracy of a price index than sampling errors. BLS expends much effort to minimize these errors. Highly trained personnel insure comparability of quality of items from period to period (see answer to question 8); collection procedures are extensively documented. The CPI program has an ongoing research and evaluation program, to identify and implement improvements in the CPI. 21. Will the CPI be updated or revised in the future?Yes. The CPI will need revisions, as long as there are significant changes in consumer buying habits or shifts in population distribution or demographics. The Bureau, by developing annual Consumer Expenditure Surveys and Point-of-Purchase Surveys, has the flexibility to monitor changing buying habits in a timely and cost-efficient manner. In addition, the census conducted every 10 years by the Department of Commerce provide information that enables the Bureau to reselect a new geographic sample that accurately reflects the current population distribution and other demographic factors. As a matter of policy, BLS is continually researching improved statistical methods. Thus, even between major revisions, further improvements to the CPI are made. For example, until recently, the Bureau would continue to price the brand-name version of a prescription drug even after it lost its patent protection, if the brand-name drug was still sold in the selected outlet. Starting in January 1995, BLS changed this policy. Now, 6 months after a drug loses its patent protection, a unique item to be priced is reselected from all therapeutically equivalent drugs (including the original) sold in the selected retail outlet. This gives generic versions of the drug a chance to be selected as a substitute. BLS waits until 6 months after the patent expires to give the emerging generic drugs time to gain market share, because the chance of selection is proportional to the sales of each version of the drug in the retail outlet. This new procedure provides a better reflection of consumers' experience with prescription drug prices, since many consumers switch to generic versions of drugs, as they become available. 22. How can I get CPI information?CPI information is available from BLS electronically, through subscriptions to publications, and via telephone and fax, through automated recordings. Information specialists are also available in the national and regional offices to provide assistance. Electronic access to CPI data BLS on the Internet. Through the Internet, BLS provides free, easy, and continuous access to almost all published CPI data and press releases. The most recent month's CPI is made available immediately at the time of release. Additionally, a database called LABSTAT, containing current and historical data for the CPI is accessible. Data and press releases from other BLS surveys are also available. This material is accessible via the World Wide Web (WWW), and File Transfer Protocol (FTP). Send E-mail to labstat.helpdesk@bls.gov for help using any of these systems. World Wide Web. The BLS Web site provides easy access to LABSTAT, as well as links to program-specific home pages. In addition to data, the CPI home page provides other CPI information. This includes a brief explanation of methodology, frequently asked questions and answers, contacts for further information, and explanations of how the CPI handles special items, like medical care and housing. In addition, CPI press releases and historical data for metropolitan areas can be accessed, by linking to the regional office home pages from the main BLS Web site listed above. FTP. This tool provides access to CPI LABSTAT data, as well as documentation and press release files organized in hierarchical directories. Connect to www.bls.gov using FTP, log on as ANONYMOUS and use your complete Internet e-mail address as the password. Subscriptions to CPI publications Summary data. Free, monthly, 2-page publication containing 1- and 12-month percent changes for selected U.S. city average Consumer Price Index for All Urban Consumers (CPI-U) and Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) index series. The All Items index data for each local area are also included. To be added to the mailing list, write to: Office of Publications, Bureau of Labor Statistics, 2 Massachusetts Avenue, NE., Room 2850, Washington, DC 20212-0001, or call (202) 691-5200 or any of the BLS regional offices listed below. CPI Detailed Report. Most comprehensive report of the Consumer Price Index. This publication may be ordered by writing to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA, 15250-7954, or by calling (202) 512-1800. Subscriptions cost $31 per year. Monthly Labor Review (MLR). The MLR provides selected CPI data included in a monthly summary of BLS data and occasional articles and methodological descriptions too extensive for inclusion in the CPI Detailed Report. The MLR costs $31 per year. This publication may be ordered by writing to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA, 15250-7954, or by calling (202) 512-1800. The MLR home page also provides recent issues of the MLR. Recorded CPI data Summary CPI data are provided 24 hours a day on recorded messages. Detailed CPI information is available by calling (202) 691-5200. A touch-tone telephone is recommended, as this system allows the user to select specific indexes from lists of available data. Recorded summaries of CPI are also available by calling any of the metropolitan area CPI hotlines listed below. These hotline summaries typically include data for the U.S. city average, as well as the specified area. Recordings are approximately 3 minutes in length, do not require a touch-tone telephone, and are available 24 hours a day, 7 days a week. Area Hotline Numbers
Other sources of CPI data Technical information is available during normal working hours, Monday through Friday (Eastern Time), by calling (202) 691-7000 or any of the regional offices listed below. Fax-on-Demand. A wide variety of BLS information and data, including CPI, are available from the BLS Ready Facts catalog via fax-on-demand. CPI documents from Ready Facts that are available around the clock include the monthly CPI press release, selected national, regional and metropolitan area historical summaries, and some technical information. The latest CPI information is posted during the morning of release day. To have the latest Ready Facts catalog sent to you, call (202) 691-6325, and then follow instructions. Each regional office also has a fax system in place; these systems include all information available from the national catalog, in addition to region-specific information on the CPI. Phone and fax-on-demand numbers for the eight regional offices are:
Historical tables. These include all published indexes for each of the detailed CPI components. They are available via the Internet, by calling (202) 691-7000 in the national office, or by contacting any of the regional offices listed above. Descriptive publications. These publications describe the CPI and ways to use it. They include simple fact sheets discussing specific topics about the CPI, this pamphlet with its broad, non-technical overview of the CPI in a question and answer format, and a quite technical and thorough description of the CPI and its methodology. These publications are available upon request by calling (202) 691-7000, and many are included on the CPI home page on the Internet. Special publications. Also available are various special publications, such as Relative Importance of Components in the Consumer Price Index, and materials describing the annual revisions of seasonally adjusted CPI data. For more information, call (202) 691-7000.
Last Modified Date: July 1, 2003 |
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