Consumer Price Index

For many years the Bureau Of Labor Statistics, a part of the United States Department of Labor, has recorded the prices of many goods and services Americans buy. From these records are computed "price indexes," single numbers which indicate how much the prices of specific combinations of goods have changed over a specified time period. The combinations of goods are selected to represent typical purchases of particular groups of Americans. In addition to very broad indexes which attempt to measure general price changes across the whole country, there are indexes which measure price changes for certain classes of goods and services, such as food and housing, and for particular cities and regions.

The consumer price index and inflation calculators are easily available on the web at http://www.bls.gov/cpi, but it is useful to understand the consumer price index. Here is a simplified example using made-up numbers of the way price indexes are calculated. Suppose that in Minneapolis typical expenses for a family of four averaged $975 during 1982-84. This figure would include payments for housing, transportation, food and other things purchased by an average household. By January, 1986 the same goods and services that cost $975 before might have increased in price to $1,050. This is an increase of $75 or about 7.7%. This same percentage change could be expressed by making 100 the price index for 1982-84, and 107.7 the price index for January, 1986.

It might be that the goods and services that averaged $975 in Minneapolis in January, 1982-84 cost only $945 in Chicago at that time. Prices in Chicago for these goods might have increased by January, 1986 to $1035, a change of $90 or 9.5%., (Again these numbers are made up.) This same percentage change could be expressed by making 100 the price index for January, 1982-84 and 109.5 the price index for January, 1986.

Prices Jan82-84 Prices Jan 86 Price Index Jan 82-84 Price Index Jan 86
Minneapolis $975 $1050 100 107.7
Chicago $945 $1035 100 109.5





Notice that a price index is not a price. The fact that the price index is 100 for both cities in 1982-84 doesn't mean that prices in the two cities were the same then. The fact that Chicago price index for January, 1986 is higher than the corresponding index for Minneapolis does not mean that prices were high in Chicago. A price index measures only changes in prices; it tells nothing about changes in the kinds and amounts of goods and services people buy, the total amount families spend for living or the differences in living costs in different places.

Many people who call for information about price indexes want to know what the percentage change has been over a given period of time. Here is a rule you can give to patrons, or which you can use yourself to compute the percentage change.

  1. Make sure the both index numbers are expressed in terms of the same base year. Ordinarily the base year will be 1982-84.
  2. Subtract the index number for the earlier date from the number for the later date.
  3. Divide this difference by the index number for the earlier date.
  4. Multiply the result by 100.

Example 1: What was the percentage change in the Consumer Price Index between 1985 and January, 1986.

  1. The index figure for 1985 is 107.6. The index number for January, 1986 is 109.6.
  2. 109.6 - 107.6 = 2
  3. 2/107.6 - .01858
  4. .01858 x 100 = 1.858. So the change from 1985 to January, 1986 was 1.858%.

Originally there was one national Consumer Price Index (CPI). In January, 1978, however, the Bureau of Labor Statistics began to publish two new price indexes for consumer goods. They are the Urban Wage Earner and Clerical Worker Index, and the All Urban Consumers Index. The two indexes are based on the spending habits of two different groups of people. "Urban wage earners and clerical workers" make up about 40% of the U.S. population. "All urban consumers" consist of this 40% plus retired persons, the unemployed, salaried workers and the self-employed, for a total of abut 80% of the U.S. population. Neither group includes the rural population, people in the military or people in institutions.

Many people work under contracts which call for periodic wage adjustments or renegotiations based on changes in the old CPI, and it was published along with the two new indexes for the first six months of 1978. This period of overlap was intended to give parties to contracts based on the old CPI a chance to amend them. Unfortunately, although the old CPI was last computed for June, 1978, many contracts still refer to it. When people call now and ask for the "cost of living" there isn't going to be an easy answer.

Although the new Urban Wage Earner and Clerical Worker Index covers the same part of the population as the old CPI, it based on a more recent survey of the goods and services these people buy. Not only is the new "average market basket of goods" different from the old one, but the way in which price changes for these goods will be measured is also different. A certain amount of continuity between the old index and both new ones was provided by setting the December, 1977 value of the new indexes equal to that month's value of the old CPI You can refer to the sample price Index on the first page to get a feeling for why the initial value of a price index can be set equal to any value one chooses.

As a matter of convenience people may wish to proceed as if the old CPI and the new Urban Wage Earners and Clerical Workers Index are the same. That's up to the parties to the contract and giving advice to them on this subject is not the librarian's job. It would be better to refer people who want advice to the Bureau of Labor Statistics in Chicago.

The important thing for librarians to know is that the old Consumer Price Index is no longer computed and has been replaced by two new indexes.

Some people may Call and ask for the Cost Of living or Consumer price index for Minnesota. The Bureau of Labor Statistics does not compute such an index. Neither is there an index for counties or non-metropolitan cities and towns.

The American Chamber of Commerce Researchers Association (ACCRA) publishes a quarterly Cost of Living Index based on cost differentials of goods and services for a mid-management standard of living as opposed to a clerical worker standard of living or average costs for all urban consumers. The ACCRA index includes Minneapolis, St. Paul, Rochester, and St. Cloud, Minnesota

Neither index includes taxes as a cost of living measure.

For further information about the consumer price index, contact your headquarters library or your referral library or the following:

Labor Statistics Information
U.S. Dept. of Labor
230 S. Dearborn
Chicago, IL 60604
Tel.: (312)353-1880

The figures for the CPI are published in the U.S. STATISTICAL ABSTRACT and in THE WORLD ALMANAC, but as you have learned those will not be up to the minute. Current CPI's can be found in the MONTHLY LABOR REVIEW (one of the best sources), BUSINESS WEEK, U.S. NEWS AND WORLD REPORT and monthly newspaper articles. The figures are released about the 20th or 21st of the month for the preceding month.

Originally written by Tom Zimoski, Fresno County Library. Revised by More Committee

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This page was updated December 3, 2003.