Chapter 20:
The Consumer Price Index

Updated as of June 2006


Table of Contents:
INTRODUCTION [below]
SECTION I: THE CONSUMER PRICE INDEX
SECTION II: HISTORY OF THE INDEX
SECTION III: CURRENT CHANGES
SECTION IV: HOW THE INDEX IS COMPILED
SECTION V: HOW THE CONSUMER PRICE INDEX AND "COST OF LIVING" DIFFER
SECTION VI: THE CPI AND PERSONAL EXPERIENCE
SECTION VII: CPI USED AS A WAGE ESCALATOR
SECTION VIII: NEW INDICES AND INDEX CHANGES
APPENDICIES

Introduction

One of the most frequently used and least understood statistical series produced by the Bureau of Labor Statistics (BLS) of the United States Department of Labor (DoL), are the Consumer Price Indexes (CPI). These indexes are frequently referred to as the "cost-of-living" indexes, but there is, in fact, no such thing as a "cost-of-living" index.

The Consumer Price Indexes are statistical measures of price changes. The CPI reflects changes in the prices of a fixed "market basket" of goods and services. It compares what the "market basket" cost this month against what it cost a month, a year, or ten years ago. Beginning with the January 1998 statistics, an updated "market basket" is being reported. But, note that the base period being used by BLS will continue to be 1982-84. The CPI does not measure spendable income, living costs, fluctuations in consumer spending patterns, or changes in life style.

There are two major indexes released each month. These indexes are: The Consumer Price Index for Urban Wage Earners and Clerical Workers and the Consumer Price Index for All Urban Consumers. National figures and figures for three major U.S. cities are released monthly. Index information on 11 additional metropolitan areas are released bimonthly, and semiannual indexes are released for 12 cities. (See Appendix B)

The purpose of this chapter is to supply information on what the Consumer Price Index is, what it is not, how it is compiled, its historical development and its uses and limitations. It includes an explanation of the two series indexes, and an explanation of how the index is used for indexing purposes, and to explain index changes and new bases.

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