Consumer Price Index

How BLS Measures Changes in Consumer Prices

About the middle of each month, the Bureau of Labor Statistics (BLS) issues a news release on the change in retail prices that American consumers paid during the previous month. This report, the Consumer Price Index (CPI), is important because it provides a statistical measure of the nation's economic well-being. It shows how occurrences such as a drought in the midwest, a freeze in Florida or a disruption of crude oil supplies affect the pocketbooks of American households. The President, the Congress and the Federal Reserve Board use trends in the CPI to aid in formulating fiscal and monetary policy. Finally, the CPI is used both to adjust wages and salaries for millions of workers covered by collective bargaining agreements and to keep pensions, rents, royalties, alimony and child support payments in line with changing prices.

The process by which the Bureau measures price changes to consumers each month requires the efforts of hundreds of BLS employees and the patient cooperation of thousands of individuals in households and retail outlets throughout the country. The cycle begins during the first week of the month when BLS data collectors (called economic assistants) gather price information from selected department stores, supermarkets, service stations, doctors' offices, rental units, etc. For the entire month, about 80,000 prices are recorded in 87 urban areas. During each monthly visit, the economic assistant collects price data on a specific good or service with precisely defined qualities or characteristics. If the selected item is available, the assistant records its price. If the item is not available or if there have been any changes in its quality of the item since the last time prices were collected, the assistant selects a new item or records the quality change. By collecting price data on a clearly defined market basket of products that consumers purchase for their day-to-day living, BLS ensures that the CPI will provide an accurate measure of change in prices.

The Bureau does not have resources to price every good or service in every retail outlet in every urban area of the country. Therefore, a scientifically selected sample must be used to make the CPI representative of the prices paid for all goods and services purchased by consumers in all urban areas. In fact, the CPI is developed from a series of interrelated samples. These include a Consumer Expenditure Survey from a national sample of almost over 30,000 families, which provides detailed information on spending habits. This enables BLS to construct the CPI market basket of goods and services and to assign each item in the market basket a weight or importance based on total family expenditures. Another national sample of about 16,800 families serves as the basis for a Point-of-Purchase survey, that identifies the places where households purchase various types of goods and services. Finally, BLS uses 1990 Census of Population data to select the urban areas where prices are collected, and to determine the housing units within each urban area that are eligible for use in the shelter component of the CPI.

Once the economic assistants have collected the prices in a given month, computer-generated listings of data that are outside the bounds of BLS expectations are distributed to BLS commodity specialists, who have detailed knowledge about the particular goods or services priced. The specialist checks the data for accuracy and consistency and makes any necessary corrections or adjustments. Next, additional computer programs calculate weighted changes in prices for the different components and areas. After further review by commodity analysts, other computer programs aggregate the data and convert them into indexes that show price changes for each category of items, each local area or region and the United States as a whole. Then the Bureau's economists analyze the data and prepare the written releases that are used by other government agencies, the media and the public. The entire process of reviewing, analyzing, and publishing the data is finished about 20 days after the last data are collected.

While the CPI is still being reported by T.V. and newspapers around the country, BLS economic assistants are already hard at work collecting price information for the next month.

Last Modified Date: October 16, 2001

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