REVISIONS IN JANUARY TO AUGUST 2000 CPI DATA

The Bureau of Labor Statistics (BLS) is reissuing Consumer Price Index (CPI) data for the January to August 2000 period to correct an error recently uncovered in the software used to calculate the Rent of Primary Residence and Owners' Equivalent Rent of Primary Residence components of the index. Correcting this error increases previously published values for those components and for index series that include those components, in selected local areas as well as at the U.S. City Average level.

The affected series include the U.S. City Average All Items CPIs for All Urban Consumers (CPI-U) and for Urban Wage Earners and Clerical Workers (CPI-W). The attached tables show, at the U.S. average level, the revised CPI-U and CPI-W monthly values for the first eight months of 2000 for the All Items, All Items less Food and Energy, and Housing series. Each of the recalculated All Items CPI-U and CPI-W values for the first eight months of 2000 is higher than the value originally published by 0.1 index point, except for the May and July CPI-U values, which are now 0.2 index point higher. (Because published index values are rounded to one decimal place, the size of the difference between the previously published and the recalculated index values varies from month to month.) Between December 1999 and August 2000, the corrected CPI-U rose 2.7 percent, compared with an increase of 2.6 percent in the series as originally published.

The error occurred with the introduction of the new housing sample and calculation procedures beginning in January 1999. The error was in the calculation of quality adjustments when housing units in the CPI Rent and Owners' Equivalent Rent samples reported changes in air conditioning (AC) equipment. When a housing unit changed from having no AC or a non-central type of AC to having central AC, an adjustment was applied automatically. Specifically, the value of central AC was subtracted from the current period rental price to make it consistent with the price in the previous period (a negative adjustment to the current period price). Conversely, when the AC equipment in a housing unit changed from central AC to no AC or non-central AC, the value of central AC should have been added to the current period rental price (a positive adjustment to the current period price). The computer estimation system in use beginning in January 1999 applied a negative adjustment in both cases, leading to a small understatement of index growth.

The error was first identified in June of this year, when a CPI Housing analyst was reviewing the data over time for a particular housing unit. The analyst noted that the adjustment to the rental price for the unit was negative when the AC equipment changed from non-central AC to central AC (which is correct), but also was negative when the AC equipment subsequently changed back from central AC to non-central AC (which is incorrect). Following the identification of this error, time was required to determine its cause, to realize its significance, and to identify the correct solution. The process of calculating the correct index values going back to the first month in which the problem occurred consumed a substantial additional amount of time. Once the index recalculations were completed, the recalculated data were evaluated in the context of BLS guidelines for issuing corrections to previously published CPI data.

The impact of the software error was substantially exacerbated by an improbably large number of reported changes in the AC status of individual rental units. In many of these cases, reported changes in AC status were reversed in subsequent reporting periods. The high level of reported changes led us to conclude that this information was not being reported accurately. As a result, the recalculations to correct for the error were carried out by eliminating all adjustments made for changes in AC status over the period.

Although some index values in the January to December 1999 period were affected by the error, no revisions to data for this period will be published. Changes to the overall, or all items, index at the national average level during this period were not large enough to warrant re-publication under BLS policy, as in no month of 1999 did the overstatement in the overall index exceed 0.1 index point. There is, moreover, a presumption in BLS policy and practice against revisions to the CPI that extend back over lengthy periods.

Unlike many statistical series, the CPI is in final form when first issued. This, however, does not mean that it is never revised. During the last 10 years, for example, corrections have been made 7 times, generally as a result of reporting errors. None of these corrections led to any revisions of the All Items index at the U.S. level. The last time that the U.S. City Average All Items CPI was revised was in December 1974, when the values for the months of April through October were recalculated and released with issuance of the November CPI.

The Bureau of Labor Statistics is acutely aware that it did not meet its standards for accuracy and reliability in this case. The error occurred despite a number of processes designed to ensure the production of accurate CPI data. The BLS will undertake a rigorous review of this error in order to identify and correct weaknesses in these processes, with particular focus on four important areas: the procedures for the development and review of requirements for new software applications; the procedures for acceptance testing of these applications; the procedures for the routine monthly review of microdata; and the data collection procedures for obtaining information on the characteristics of individual rental units.

All revised CPI series will be made available at 10:00 a.m. today. The revised CPI series will be posted on the Internet on the CPI home page at http://www.bls.gov/cpi/ and also will be available upon request in hard copy form.

Bureau of Labor Statistics

September 28, 2000

Last Modified Date: October 16, 2001