Consumer Price Index

How BLS Measures Price Change for Personal Computers and Peripheral Equipment in the Consumer Price Index

The Personal Computers and Peripheral Equipment (PC) index was first released in January 1998 with December 1997 = 100. The PC index is a subcomponent of the Information Technology, Hardware and Services component of the Consumer Price Index which was first released in January 1989 with December 1988 = 100. For the CPI, BLS tracks changes in prices for items sold to household consumers for personal use.

Quality and Adjusting for Quality Changes

The quality for personal computers is associated with the attributes of the components that are used to build it. Attributes such as the speed of the CPU (central processing unit), the amount of RAM (random access memory), and the hard drive storage capacity are a few such attributes. Based on these and other attributes, all personal computers are classified into one of there levels of quality, High End, Mainstream, or Economy/Low-End.

Item

Relative Importance
December 2007

Information technology, hardware and services .634
Personal computers and peripheral equipment .242
Computer software and accessories .040
Internet services and electronic information providers .282
Telephone hardware, calculators, and other Consumer information items .061
Unsampled information and information processing .059

The specific attributes that differentiate each quality level are updated every 6 months and CPI Economic Assistants (EAs) are instructed to select (substitute) to a computer which contains the updated attributes in order to maintain a level of quality. This process, known as Directed Substitution, was introduced in January 2000. The Directed Substitution process is different from the typical CPI process where an item continues to be priced until that item is no longer available in the marketplace. With Directed Substitution, EAs are directed to substitute to a new item every six months, regardless of the previous item being available. The analyst in the Washington Office then adjusts for the quality change in the computer's attributes to reflect price change for the particular quality level.

The category of personal computers and peripheral equipment includes items such as desktop computers, notebook computers, peripheral equipment and PDAs (personal digital assistants). Peripheral equipment includes but is not limited to, hard drives, mice, monitors, printers, etc.

From January 1998 to September 2003 the CPI program used hedonic regressions, developed in a cooperative effort with the Producer Price Indexes (PPI) and International Price Program (IPP) programs, as a basis to determine appropriate quality adjustments amounts for personal computers. While this endeavor was viewed as successful and worthwhile, the CPI program decided to adopt a different approach. It should be noted that the hedonic quality adjustments regarding chip speed were deemed unreliable and were never applied to CPI data.

Because the individual components in PC configurations change so rapidly, the CPI program began to move towards an approach that uses attribute values available on the Internet as a basis to determine appropriate quality adjustments amounts. By 2003, a process of attribute cost adjustment was fully implemented. The attribute cost adjustment database for desktops computers has seven attribute categories. Each attribute category is populated with the values of specific components, resulting in a database of 250 to 300 attribute values which are updated monthly.

The monetary values of the attributes used by the CPI for adjustments are obtained from Original Equipment Manufactures (OEM), websites and price compiler sites on the Intranet. OEM prices are what the manufacturer of the component, be it a hard drive, CPU, or RAM model charges computer builders for its goods.

Additional information

Additional information on the Consumer Price Index can be found in the BLS Handbook of Methods, chapter 17, "The Consumer Price Index," Bulletin 2490 (1997). The current version of this chapter is also available on the BLS Internet site (www.bls.gov/opub/hom/homch17_a.htm) or you may call the Information and Analysis Section of the CPI at 202-691-7000.

Last Modified Date: June 26, 2008

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