NCPA - National Center for Policy Analysis

Revising The CPI

December 21, 1998

The Bureau of Labor Statistics has announced that it will attempt to improve the consumer price index by revising its consumption expenditure weights more frequently. Beginning in January 2002, the weights will be revised every two years instead of once a decade.

  • The expenditure weights use household spending patterns to measure the relative importance of certain items in the CPI.
  • The BLS said it would collect data on prices of goods to expand the sample size of its consumer expenditure survey, starting in 1999.
  • In addition, BLS plans to change the way the index's item samples are updated -- paying particular attention to areas that are affected by rapid advances in technology.
  • Under the new plan, expenditure weights will never be more than four years old.

The bureau recently simulated the impact of updating the weights of the CPI between 1989 and 1997. It found the simulated index increased by 31.9 percent -- compared with the actual rise of 33.9 percent.

The CPI is used to calculate cost-of-living adjustments for Social Security benefits and by businesses and labor unions to adjust wages under labor contracts.

Source: Aleajandro Bodipo-Memba, "Consumer Price Index to Get Changes to Make it a Better Inflation Measure," Wall Street Journal, December 21, 1998.

 

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