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Archived News Release--Caution:
information may be out of date.
For more information call: (202) 219-7317, Ext.114
The Bureau of Labor Statistics (BLS) has updated the
make-up of the "market basket" of some 80,000 goods and services it uses to
determine the monthly Consumer Price Index (CPI), the nation's major measure of
inflation for consumers. The CPI is improved on an on-going basis by BLS.
The revised market basket, which will more accurately
reflect current consumer spending patterns and lifestyles, will be used for the
first time with CPI figures for January, 1998. The CPI market basket was last
updated in 1987. BLS updates the CPI about once a decade, but is considering
more frequent updates.
"The inclusion of a new updated market basket in this
month's Consumer Price Index represents a continuation of the efforts by BLS to
improve the CPI. I am committed to insuring that we continue this process of
making technically sound improvements to this important economic indicator,"
said Secretary Alexis Herman.
The federal government uses the CPI to adjust benefits for
almost 80 million Americans and to adjust the Federal income tax structure to
reduce "bracket creep," or inflation-induced increases in tax rates. The
Congressional Budget Office estimates that in Fiscal Year 1999, each 1.0
percent increase in the CPI will cost the federal government $6 billion.
The private sector also uses the CPI widely to compute
cost-of-living adjustments in wages, rental agreements, alimony, royalties, and
compensation payments.
The latest CPI revision includes several major steps:
- Updating the CPI geographic sample with 1990 Census figures. Most
metropolitan areas were expanded to include additional suburbs based on shifts
in population and commuting patterns.
- Using the BLS 1993-1995 Consumer Expenditure Surveys, replacing the
1982-84 surveys, to reshape the market basket.
- Using new statistical techniques to better reflect changes in the
quality of goods and services, particularly computers.
BLS estimates that the more accurate CPI will grow between
0.1 and 0.2 percentage points more slowly than the old CPI.
Key structural changes in the revision include adding a
major category, education and communication, to the seven categories used
previously and expanding the "entertainment" category into "recreation." The
other categories are food and beverages, housing, apparel, transportation,
medical care, and other goods and services.
Education expenses, including tuition, day care, and school
books and supplies, were previously listed under "other good and services."
Telephone and other communications costs were previously listed under
"housing."
Recreation now includes the costs of cable TV, previously
under housing; recreational reading, previously under other goods and services;
and sewing, previously under apparel.
Americans are spending a smaller share of their income on
food and beverages, transportation, apparel, and housing costs other than
shelter. Americans are spending a larger share of their income on shelter and
medical care. We also see that since the last market basket update:
- Costs of education, child care, and medical care rose much faster
than the average increase for all items.
- Electronic equipment, telephone service, household products, and
apparel generally rose much more slowly than the average in price.
- Consumption increased the most for information processing materials,
telephone services, and personal care products and services.
- Alcoholic beverages, tobacco, and repair of household items were
among items with the greatest decrease in consumption.
In the food category, Americans are eating more rice,
pasta, and cornmeal as well as more prepared foods and snacks. They're eating
less bread, fresh fruits and vegetables, and beef and veal.
Some changes reflect a more common sense reorganization of
subcategories. For example, butter has been moved from "dairy products" like
milk and cheese, into "fats and oils" with products that are used in a similar
way. Food and beverages outside the home are now categorized by type of
establishment instead of by meal. Separate subcategories for cars and trucks
are combined into "vehicles."
When the media and others refer to the CPI, they are
usually referring to its broadest measure, All Urban Consumers (CPI-U), which
captures the cost of a typical market basket of goods and services based on the
purchases of about 87 percent of all Americans. The other CPI, Urban Wage
Earners and Clerical Workers (CPI-W), represents about 32 percent of all
Americans. Those included in the CPI-W must receive a majority of their income
from wage or clerical occupations and have been employed for at least 37 of the
past 52 weeks.
BLS also issues CPI reports for four regions and more than
two dozen cities. BLS will issue 26 local reports, three fewer than in the
past. Reflecting population shifts, there will no longer be reports for
Buffalo-Niagara Falls and New Orleans. Following guidelines from the Office of
Management and Budget, Baltimore and Washington, D.C. have been combined into
one metropolitan area and will share a report.
BLS advises those in areas that will no longer have local
CPIs to use either regional or national figures.
Some metropolitan areas will receive reports less often
than in the past. Philadelphia and San Francisco will receive reports six times
a year instead of 12. Pittsburgh and St. Louis will receive reports twice a
year instead of six times a year.
Some areas will receive reports more frequently. Atlanta
and Seattle will now receive reports six times a year instead of twice a year.
Tampa-St.Petersburg, which received a report annually, will now receive reports
twice a year.
Reports for the following areas will continue to be
published with the same frequency. New York, Chicago, and Los Angeles will
receive reports 12 times a year. Boston, Cleveland, Dallas-Fort Worth, Houston,
Detroit, and Miami will continue to receive reports six times a year. (The
combined areas of Washington-Baltimore will also receive reports six times a
year.) Kansas City, Minneapolis-St.Paul, Denver, Portland-Salem, Cincinnati,
Milwaukee, San Diego, Anchorage, and Honolulu will continue to receive reports
twice a year.
The CPI was developed during World War I to enable the
federal government to establish cost-of-living adjustments for workers in
shipbuilding centers. The government began publishing the CPI regularly in
1921, based on prices of 145 items in 32 industrial cities and reflecting
1917-19 expenditure patterns. The CPI market basket has been updated five
previous times -- in 1940, 1953, 1964, 1978, and 1987.
The government and economists use the CPI to translate
other measures into "inflation-free dollars" to allow comparisons in consumer
purchasing power over time.
By law, the federal government uses the CPI to adjust
payment for:
- 47.8 million Social Security beneficiaries
- 22.4 million food stamp recipients
- 4.1 million military and Federal Civil Service retirees and
survivors.
- 26.7 million children who eat lunch at school.
The BLS cautions that the CPI has limitations:
- The CPI is not a true "cost-of-living" index because it does not
attempt to consider all government or environmental factors affecting
consumers' well-being or to estimate consumer adjustments to rising prices --
for example, by buying more chicken and fish if the price of beef
increases.
- The CPI is an average and does not necessarily reflect the actual
spending patterns of any individual or sub-population group, such as the
elderly, the poor, or those living in rural areas.
- The CPI cannot be used to measure differences in 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.
Archived News Release--Caution:
information may be out of date.
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