CPI FAQ Brochure (Attachment N(i))

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The Consumer Expenditure Surveys: The Quarterly Interview and the Diary

CPI FAQ Brochure (Attachment N(i))

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Understanding the
Consumer Price Index:
Answers to Some Questions
U.S. Department of Labor
Bureau of Labor Statistics
August 2004 (Revised)

Introduction

he continually growing number of uses and
users of the Consumer Price Index (CPI) has
generated an increasing number of questions
about the CPI. Although the Bureau of Labor Statistics (BLS; the Bureau) has provided extensive material to the public describing the CPI, much of this
material has been quite technical. The Bureau has
developed this pamphlet, therefore, to

• answer frequently asked questions about
the CPI and

• help users of the CPI to better understand
and use it.
Information in this publication will be made available to sensory-impaired individuals upon request.
Voice phone: (202) 691-5200; Federal Relay Service:
1-800-877-8339.

Contents
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)

What is the CPI?
How is the CPI used?
Whose buying habits does the CPI
reflect?
Is the CPI a cost-of-living index?
Does the CPI measure my experience with
price changes?
How is the CPI market basket determined?
What goods and services does the CPI
cover?
How are CPI prices collected and reviewed?
How is the CPI calculated?
How are taxes treated in the CPI?
How do I read or interpret an index?
Is the CPI the best measure of inflation?
Which index is the “official CPI” reported
in the media?
What index should I use for escalation?
When should I use seasonally adjusted
data?
What area indexes are published and how
often?
What area CPI should I use if there is no
CPI for the area in which I live?
Can the CPIs for individual areas be used
to compare living costs among areas?
What types of data are published?
What are some limitations of the CPI?
Will the CPI be updated or revised in the
future?
How can I get information on the CPI?

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How is the
CPI used?

The CPI affects nearly all Americans, because of the
many ways in which it is used. Following are three
major uses:

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.

What is
the CPI?

1. As an economic indicator. The CPI is the most
widely used measure of inflation and is sometimes
viewed as an indicator of the effectiveness of government economic policy. It provides information
about price changes in the Nation’s economy to
government, business, labor, and private citizens
and is used by them as a guide to making economic decisions. In addition, the President, Congress, and the Federal Reserve Board use trends
in the CPI to aid in formulating fiscal and monetary policies.
2. As a deflator of other economic series. The CPI
and its components are used to adjust other economic series for price changes and to translate
these series into inflation-free dollars. Examples
of series adjusted by the CPI include retail sales,
hourly and weekly earnings, and components of
the National Income and Product Accounts.
An interesting example is to use the CPI as a
deflator of the value of the consumer’s dollar to
find its purchasing power. The purchasing power
of the consumer’s dollar measures the change in
the value to the consumer of the goods and services that a dollar will buy at different dates. In
other words, as prices increase, the purchasing
power of the consumer’s dollar declines.

3. As a means of adjusting dollar values. The CPI
is often used to adjust consumers’ income payments (for example, Social Security), to adjust income eligibility levels for government assistance,
and to automatically provide cost-of-living wage
adjustments to millions of American workers.
As a result of statutory action, the CPI affects
the income of almost 80 million persons: 51.6 million Social Security beneficiaries, about 21.3 million Food Stamp recipients, and about 4.6 million
military and Federal Civil Service retirees and survivors. Changes in the CPI also affect the cost of
lunches for 28.4 million children who eat lunch at
school, while collective bargaining agreements
that tie wages to the CPI cover almost 2 million
workers.
Another example of how dollar values may be
adjusted is the use of the CPI to adjust the Federal income tax structure. These adjustments prevent inflation-induced increases in tax rates, an
effect called bracket creep.

Whose buying habits does
the CPI reflect?

The CPI reflects spending patterns for each of two
population groups: All urban consumers and urban
wage earners and clerical workers. The all-urban
consumer group 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 nonmetropolitan areas, farm families, persons in the Armed Forces, and those in institutions, such as prisons and mental hospitals. The
price-change experience of the all-urban consumer
group is measured by two indexes, namely, the traditional Consumer Price Index for All Urban Consum-

ers (CPI-U) and the newer Chained Consumer Price
Index for All Urban Consumers (C-CPI-U). (See answer to Question 4 for an explanation of the differences between the CPI-U and C-CPI-U.)
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the
expenditures of households 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.

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-ofliving measure. BLS has for some time used a cost-ofliving framework in making practical decisions about
questions that arise in constructing the CPI. A costof-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 role 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 constitute a complete cost-of-living framework.

Traditionally, the CPI was considered an upper
bound on a cost-of-living index, in that the CPI did not
reflect the changes in buying or consumption patterns
that consumers would make to adjust to relative price
changes. The ability to substitute means that the increase in the cost to consumers of maintaining their
level of well-being tends to be somewhat less than the
increase in the cost of the mix of goods and services
they previously purchased.
Since January 1999, a geometric mean formula has
been used to calculate most basic indexes within the
CPI; in other words, the prices within most item categories (for example, apples) are averaged with the
use of a geometric mean formula. This improvement
moves the CPI somewhat closer to a cost-of-living
measure, because the geometric mean formula allows
for a modest amount of consumer substitution as relative prices within item categories change.
Because the geometric mean formula is used only
to average prices within item categories, it does not
account for consumer substitution taking place between item categories. For example, if the price of pork
increases relative to the prices of other meats, shoppers might shift their purchases away from pork to
beef, poultry, or fish. The traditional CPI formula did
not reflect this type of consumer response to changing relative prices. In 2002, as a complement to the
CPI-U and CPI-W, the Bureau produced a new index
called the Chained CPI-U (C-CPI-U). The C-CPI-U was
created to more closely approximate a cost-of-living
index by reflecting substitution among item categories. It is unlikely, however, that the difficult problems
of defining living standards and measuring changes
in the cost of their attainment over time ever will be
resolved completely.
It is important to note that local-area CPIs cannot
be used to compare levels of living costs or prices
across areas. (See answer to Question 18: “Can the
CPIs for individual areas be used to compare living
costs among areas?”)

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Not necessarily. It is important to understand that
BLS bases the market baskets and pricing procedures for the U- and W-populations on the experience of the relevant average household, not of any
specific family or individual. It is unlikely that your
experience will correspond precisely with either the
national indexes or the indexes for specific cities or
regions.
For example, if you or your family spend a largerthan-average share of your budget on medical expenses, and medical care costs are increasing more
rapidly than the cost of other items in the CPI market
basket, your personal rate of inflation (or experience
with price changes) may exceed the increase in the
CPI. Conversely, if you heat your home with solar
energy, and fuel prices are rising more rapidly than
other items, you may experience less inflation than
the general population does.
A national average reflects all the ups and downs
of millions of individual price experiences. It seldom
mirrors a particular consumer’s experience.

Does the CPI measure my
experience with price
change?

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 2 years 2001 and
2002. In each of these years, about 10,000 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 7,500 families in each of the 2 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 the over 200
item categories in the CPI index structure.

What goods and services
does the CPI cover?

The CPI represents all goods and services purchased for consumption by the reference population (U or 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:
• FOOD AND BEVERAGES (breakfast cereal,
milk, coffee, chicken, wine, full-service meals,
and snacks)
• HOUSING (rent of primary residence, owners’
equivalent rent, fuel oil, bedroom furniture)
• APPAREL (men’s shirts and sweaters, women’s
dresses, jewelry)
• TRANSPORTATION (new vehicles, airline
fares, gasoline; motor vehicle insurance)
• MEDICAL CARE (prescription drugs and medical supplies, physicians’ services, eyeglasses
and eye care, hospital services)
• RECREATION (televisions, toys, pets, and pet
products, sports equipment, admissions)
• EDUCATION AND COMMUNICATION
(college tuition, postage, telephone services,
computer software and accessories)
• OTHER GOODS AND SERVICES (tobacco and
smoking products, haircuts and other personal
services, funeral expenses)

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Also included within these major groups are various government-charged user fees, such as water
and sewerage charges, auto registration fees, and
vehicle tolls. In addition, the CPI 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,
using scientific statistical procedures, the Bureau
has chosen samples of several hundred specific items
within selected consumer-frequented business establishments 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.

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 the prices of 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, representing 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 eight, when previously they had been sold by the
dozen) of the good or service since the last time
prices were 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,
which 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.

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 selected the urban areas from which
data on prices were collected and chose the housing units within each area that were eligible for use
in the shelter component of the CPI. The Census of
Population also provided 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) served as the basis
for a Point-of-Purchase Survey that identified the
places where households purchased various types
of goods and services.
Data from the Consumer Expenditure Survey conducted in 2001 and 2002, involving a national sample

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of more than 30,000 families, provided detailed information on respondents’ spending habits. This information enabled 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. The final stage in the sampling process is the selection of the specific detailed
item to be priced in each outlet. This is done in the
field, using a method called disaggregation. For example, BLS economic assistants may be directed to
price “fresh whole milk.” Through the disaggregation process, the economic assistant selects the specific kind of fresh whole milk that will be priced in the
outlet over time. By this process, each kind of whole
milk is assigned a probability of selection, or weight,
based on the amount the store sells. If, for example,
Vitamin D, homogenized milk in half-gallon containers makes up 70 percent of the sales of whole milk,
and the same milk in quart containers accounts for 10
percent of all whole-milk sales, then the half-gallon
container will be 7 times as likely to be chosen as the
quart container. After probabilities are assigned, one
type, brand, and container size of milk is chosen by
an objective selection process based on the theory
of random sampling. The particular kind of milk that
is selected by disaggregation will continue to be
priced each month in the same outlet.
In sum, the price movement measurement (Question 8) is weighted by the importance of the item in
the spending patterns of the appropriate population
group. The combination of all these factors gives a
weighted measurement of price change for all items
in all outlets, in all areas priced for 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

How are taxes treated
in the CPI?

CPI. For example, toll charges and parking fees are
included in the 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 called 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
question different from the one to which the present
CPI is relevant and would be appropriate for different uses.

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. BLS then measures changes in relation to that
figure. An index of 110, for example, means that
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 reference period, while percent changes
are not.

Item A
112.5
121.5
9.0
9.0/112.5
100 = 8.0

Item B
225.0
243.0

Item C
110.0
128.0

18.0
18.0
18.0/225.0
18.0/110.0
100 = 8.0 × 100 = 16.4

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Is the CPI the best
measure of inflation?

Inflation has been defined as a process of continuously rising prices or, equivalently, of a continu×
ously 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-today 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’ expectations of inflation.
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

Year I
Year II
Change in
index points
Percent change

In the table that follows, 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 items had the same percent change; that
is, prices advanced at the same rate. By contrast,
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.

basket of goods and services equivalent to one that
they could purchase in an earlier period. The CPI
also is the best measure to use to translate retail
sales and hourly or weekly earnings into real, or inflation-free, dollars.

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:
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 an unadjusted basis. Often,
the media will report some, or all, of the following:
a.

index level, not seasonally adjusted (for example, May 2001 = 177.7).

12-month percent change, not seasonally adjusted (for example, May 2000 to May 2001=
3.6 percent).

1-month percent change on a seasonally adjusted basis (for example, from April 2001 to
May 2001 = 0.5 percent).

annual rate of percent change so far this year
(for example, from December 2000 to May 2001,
if the rate of increase over the first 5 months
of the year continued for the full year, after the
removal of seasonal influences, the rise would
be 3.9 percent).

e..

annual rate based on the latest seasonally adjusted 1-month change (for example, if the
rate from April 2001 to May 2001 continued for
a full 12 months, then the rise, compounded,
would be 6.3 percent).

What index should I use
for escalation?

The decision to employ an escalation mechanism,

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as well as the choice of the most suitable index, is
up to the user. When the terms of an escalation
provision for use in a contract to adjust future payments are drafted, 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.
Following are some examples of technical or statistical guidelines from BLS:

• Also for escalation, BLS recommends using national or regional indexes, due to the volatility of
local indexes. (See the answer to Question 16 for
an explanation of this point.)

indexes that are unadjusted for seasonal variation.
(See the answer to Question 15 for a further explanation of seasonally adjusted indexes and the reasons BLS doesn’t recommend seasonally adjusted
indexes for use in escalation.)

• For escalation, BLS strongly recommends using

For those with further questions, BLS has prepared a detailed report, Using the Consumer Price
Index for Escalation. This information also may be
obtained on the CPI homepage at http://www.bls.gov/
cpi/ or by writing or calling the nearest BLS regional
office listed in the answer to Question 22. You also
may call the BLS national office at (202) 691-7000.

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 changes. 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 se-

ries, including the CPI, are adjusted to remove the
effect of seasonal influences—those which occur at
the same time and in about the same magnitude every year. Among these influences are price movements resulting from changing climatic conditions,
production cycles, changeovers of models, and holidays.
BLS annually reestimates 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.

What area indexes are
published and how often

Besides monthly publication of the national (or U.S.
City Average) CPI-U, C-CPI-U, and CPI-W, indexes
are published by area for the CPI-U and CPI-W. For
the C-CPI-U, data for all items and 27 components
are available at the national level only; for the CPI-U
and CPI-W, 377 component series are published at
the national level. Monthly CPI-U and CPI-W indexes are published for the four census regions:
Northeast, Midwest (formerly North Central), South,
and West. Monthly indexes also are 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 are available as well within each
region, cross-classified by area population size. For
the Northeast and West, however, indexes for
nonmetropolitan areas are not available. BLS also
publishes indexes for 27 local areas. These 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,

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Chicago–Gary–Kenosha, IL–IN–WI
Los Angeles–Riverside–Orange County, CA
New York–Northern NJ–Long Island, NY–NJ–CT–PA

Data for the following 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:
Atlanta, GA
Boston–Brockton–
Nashua, MA–
NH–ME–CT
Cleveland–Akron,
OH
Dallas–Fort Worth,
TX
Detroit–Ann Arbor–
Flint, MI
Houston–
Galveston–
Brazoria, TX

even
odd
odd
odd
even
even

Miami–Fort
Lauderdale, FL
Philadelphia–
Wilmington–
Atlantic City, PA–
NJ–DE–MD
San Franciso–Oakland-San Jose, CA
Seattle–Tacoma–
Bremerton, WA
Washington–
Baltimore, DC–
MD–VA–WV

even

even
even
even
odd

and BLS strongly urges users to consider adopting
the national or regional CPIs for use in escalator
clauses. 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:

(Note: The designation even or odd refers to the
month during which the area’s price change is measured. Because of the time needed for processing,
data are released 2 to 3 weeks into the following
month.)
Data are published for another group of 13 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 and January, respectively, in August and February for the following areas:

Anchorage, AK
Phoenix–Mesa, AZ
Cincinnati–Hamilton,
Pittsburgh, PA
OH–KY–IN
Portland–Salem, OR–WA
Denver–Boulder–Greeley, CO St. Louis, MO–IL
Honolulu, HI
San Diego, CA
Kansas City, MO–KS
Tampa–St. Petersburg–
Milwaukee–Racine, WI
Clearwater, FL
Minneapolis–St. Paul, MN–WI

What area CPI should I use
if there is no CPI for
the area in which I live?

Although 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 CPIs 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.

Can the CPIs for individual
areas be used to compare
living costs among areas?

No, an individual area index measures how much
prices have changed over a specific 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 vary substantially across areas.
The following illustration shows that, although
Area B has higher prices than Area A, the price change
in Area A has been greater than in Area B:

Area A
Area B

Base Period
Price
Index

Current Period
Price
Index

$0.30
$0.60

$0.55
0.90

100
100

183
150

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What types of data
are published?

Many types of data are 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.
Individual indexes are available for more than 200
items (for example, apples, men’s shirts, and airline
fares) and more than 120 different combinations of
items (for example, 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 from 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. The 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:
Atlanta, GA

U.S. City Average

All items
Food and beverages
Food
Food at home

All items
Food and beverages
Food
Food at home
Cereals and bakery products
Cereals and cereal products
Flour and prepared flour
mixes
Breakfast cereal
Rice, pasta, and corn meal
Rice
Bakery products
Bread
White bread
Other breads
Fresh biscuits, rolls,
muffins
Cakes, cupcakes, and
cookies
Fresh cakes and
cupcakes
Cookies
Other bakery products
Fresh sweetrolls,
coffeecakes, and
doughnuts
Crackers, bread, and
cracker products
Frozen and refrigerated
bakery products, pies,
tarts, turnovers

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 four regions)
and for some energy items (for the U.S., four regions,
three size classes, 10 cross-classifications of regions
and size classes, and 14 metropolitan areas).

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What are some
limitations of the CPI?

The CPI is subject to both limitations in application
and limitations in measurement.

Limitations in 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 the two areas’ 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 factors (such as social and environmental changes and changes in income taxes)
that are beyond the definitional scope of the index
and so are excluded.

Limitations in measurement
Limitations in measurement can be grouped into two
basic types, sampling errors and nonsampling errors.
Sampling errors. Because the CPI measures price
changes based on a sample of items, the pub-

lished 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 calculating the
index. 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, as well as CPI production costs. The CPI
sample design allocates the sample in a way that
maximizes the accuracy of the index, given the funds
available.
Nonsampling errors. These errors occur from a
variety of sources. Unlike sampling errors, they
can cause persistent bias in measurements of the
index. Nonsampling 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.
Nonsampling errors can be far more hazardous to
the accuracy of a price index than sampling errors.
Hence, BLS expends much effort to minimize these
errors. Highly trained personnel ensure the comparability of quality of items from period to period
(see answer to Question 8), and collection procedures are extensively documented. The CPI program has an ongoing research and evaluation program to identify and implement improvements in
the index.

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. By developing annual Consumer Expenditure Surveys and

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Point-of-Purchase Surveys, the Bureau 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 provides 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
approach 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. The new
procedure provides a better reflection of consumers’
experience with prescription drug prices, because
many consumers switch to generic versions of drugs
as they become available.

How can I get CPI
information?

Information on the CPI 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 its release. In addition, a database called
LABSTAT, containing current and historical data on
the CPI, is accessible. Data and press releases from
other BLS surveys also are available. This material is
accessible via the World Wide Web (WWW)and File
Transfer Protocol (FTP), as described next. Send email to labstat.helpdesk@bls.gov for help on how to
use any of these systems.
World Wide Web. The BLS Web site at http://www.bls.gov
provides easy access to LABSTAT, as well as links to
program-specific homepages. In addition to furnishing data, the CPI homepage at http://www.bls.gov/cpi/
provides other CPI information, including a brief explanation of methodology, frequently asked questions
and answers, a list of contacts for further information,
and explanations of how the CPI handles special items,
such as medical care and housing. Furthermore, CPI
press releases and historical data for metropolitan areas can be accessed by linking to the regional office
homepages from the main BLS Web site.
FTP. This tool provides access to CPI LABSTAT data,
as well as to documentation and press release files
organized in hierarchical directories. Using your
Internet browser, type http://www.bls.gov. Next, click
on “Get Detailed Statistics” (which is in the horizontal
banner near the top of the page), and scroll down to
the Prices and Living Conditions section. Then, click
on the appropriate “BLS-FTP” button to access the
FTP flat files.
Subscriptions to CPI publications
E-mail Subscription Service. The latest U.S. average
and local Consumer Price Indexes can be delivered
directly to a subscriber’s e-mail address on the morning of their release. Just subscribe to one of the nine

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Summary data. Monthly two-page publications containing 1- and 12-month percent changes for selected
U.S. city average Consumer Price Index for All Urban
Consumers (CPI-U) and the 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, N.E., Room 2850, Washington, DC 20212-0001, or call (202) 691-5200 or any of
the BLS regional offices listed toward the end of this
document.
CPI Detailed Report. The 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, 152507954, or by calling (202) 512-1800. Subscriptions cost
$47 per year.

national and regional CPI subscriptions offered on the
BLS News Service (http://www.bls.gov/bls/list.htm).

Monthly Labor Review (MLR). The MLR provides
selected CPI data in a monthly summary of BLS data
and occasional articles and methodological descriptions that are too extensive for inclusion in the CPI
Detailed Report. The MLR costs $49 per year and
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
Internet Web site at http://www.bls.gov/opub/mlr/
mlrhome.htm has issues of the MLR back to 1988.
Recorded CPI data
Summary CPI data are provided 24 hours a day on recorded messages. Detailed information on the CPI is
available by calling (202) 691-5200 A touch-tone telephone is recommended, as that device allows the user to
select specific indexes from lists of available data.
Recorded summaries of CPI data may be obtained
by calling any of the following metropolitan-area CPI
hot lines:

Area Hotline Numbers
Anchorage
(907) 271-2770
Atlanta
(404) 331-3415
Baltimore
(410) 962-4898
Boston
(617) 565-2325
Chicago
(312) 353-1800
Cincinnati
(513) 684-2349
Cleveland
(216) 522-3852
Dallas
(214) 767-6970
Denver
(303) 844-1726
Detroit
(313) 226-7558
Honolulu
(808) 541-2808
Houston
(713) 718-3753
Indianapolis
(317) 226-7885
Kansas City
(816) 426-2481

Los Angeles
(310) 235-6884
Miami
(305) 358-2305
Milwaukee
(414) 276-2579
Minneapolis–St. Paul
(612) 725-3580
New York
(212) 337-2400
Philadelphia
(215) 656-3948
Pittsburgh
(412) 644-2900
Portland
(503) 231-2045
St. Louis
(314) 539-3581
San Diego
(619) 557-6538
San Francisco
(415) 975-4350
Seattle
(206) 553-0645
Washington, DC
(202) 606-6994
(202) 691-5200
(410) 962-4898

Summaries typically include data for the U.S. city
average, as well as the specified area. Recordings are
approximately 3 minutes in length and are available 24
hours a day, 7 days a week.

Other sources of CPI data
Technical information may be obtained during normal
working hours, Monday through Friday (Eastern
Time), by calling (202) 691-7000 or any of the regional
offices.
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 docu-

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ments 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 the day the index is released. To have the latest Ready Facts catalog sent to you, call (202) 6916325, and then follow the instructions given. 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 nine regional offices are as follows:

Office

FaxonDemand

Telephone

(202) 691-6325 (202) 691-7000
Washington, DC
Bureau of Labor Statistics
Office of Prices and Living
Conditions
2 Massachusetts Avenue, N.E.
Washington, DC 20212-0001
Boston
Bureau of Labor Statistics
Economic Analysis and
Information
JFK Federal Bldg., E-310
Boston, MA 02203

(617) 565-9167 (617) 565-2327

Philadelphia
Bureau of Labor Statistics
Economic Analysis and
Information
The Curtis Center, Suite 610 East
170 South Independence
Mall West
Philadelphia, PA 19106-3305

(215) 597-4153 (215) 597-3282

New York
Bureau of Labor Statistics
Economic Analysis and
Information
201 Varick Street, Room 808
New York, NY 10014-4811

(212) 337-2412

Atlanta
Bureau of Labor Statistics
Economic Analysis and
Information
61 Forsyth Street, S.W.
Room 7T50
Atlanta, GA 30303

(404) 331-3403 (404) 331-3415

(212) 337-2400

Office

Chicago
Bureau of Labor Statistics
Economic Analysis and
Information
230 S. Dearborn Street,
Room 960
Chicago, IL 60604
Kansas City
Bureau of Labor Statistics
Economic Analysis and
Information
1100 Main Street, Suite 600
Kansas City, MO 64105-2112
Dallas
Bureau of Labor Statistics
Economic Analysis and
Information
525 Griffin Street, Room 221
Dallas, TX 75202
San Francisco
Bureau of Labor Statistics
Economic Analysis and
Information
P.O. Box 193766
San Francisco, CA 94119-3766

FaxonDemand

Telephone

(312) 353-1880 (312) 353-1880

(816) 426-3125 (816) 426-2481

(214) 767-9613 (214) 767-6970

(415) 975-4567

(415 ) 975-4350

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Descriptive publications. These publications describe the CPI and ways to use it. They include (1)
simple fact sheets discussing specific topics about
the CPI, (2) this pamphlet with its broad, nontechnical overview of the CPI in a question-and-answer
format, and (3) 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
homepage 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.

Historical tables. These include all published indexes for each of the detailed CPI components. They
may be obtained via the Internet, by calling (202)
691-7000 in the national office, or by contacting any
of the regional offices.

Further information may be obtained from the Office of Prices and Living Conditions, Bureau of Labor Statistics, 2 Massachusetts Avenue, N.E., Room
3615, Washington, DC, 20212-0001, telephone (202)
691-7000, or by calling any of the regional offices.

File Type	application/pdf
File Title	import&export.pmd
Author	JONES_M
File Modified	2004-08-26
File Created	2004-08-26