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August 2008, Vol. 131, No. 8

Addressing misconceptions about the Consumer Price Index

John S. Greenlees and Robert B. McClelland

The Consumer Price Index (CPI), published by the Bureau of Labor Statistics (BLS), has generated controversy throughout its history. A soon-to-be-published article by Marshall Reinsdorf and Jack Triplett discusses the many past reviews of the methods and data used in the CPI’s construction.1 Beginning with an advisory committee appointed by the American Statistical Association in 1933,2 and continuing through the recent National Research Council panel chaired by Charles Schultze,3 panels and commissions have identified and discussed what is now a well-known set of issues affecting the measurement of consumer prices: consumer substitution behavior, change in the quality of products, the introduction of new types of goods and services, and the appearance of new categories of stores and new channels of product distribution. Given the large number of private and public uses of the CPI, and especially its important role in determining Federal Government revenues and payments, it is natural that each of those issues has been the subject of intense public attention.

Within the past several years, commentary on the CPI has extended well beyond the circle of economists, statisticians, and public officials. The strongest criticism of BLS methodology has not been concentrated in a single profession, academic discipline, or political group, but comes instead from an array of investment advisers, bloggers, magazine writers, and others in the popular press. Also, whereas in the past the CPI frequently was held to be overstating inflation, recent criticism has focused on supposed downward biases.

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1 Marshall Reinsdorf and Jack Triplett, "A Review of Reviews—Ninety Years of Professional Thinking About the Consumer Price Index," in Erwin Diewert, John Greenlees, and Charles Hulten, eds., Price Index Concepts and Measurement (Chicago, University of Chicago Press, forthcoming).

2 See, for example, Margaret H. Hogg, "Revising the Wage Earners’ Cost-of-Living Index," Journal of the American Statistical Association, March 1934, pp. 120–24.

3 The Panel on Conceptual, Measurement, and Other Statistical Issues in Developing Cost-of-Living Indexes. Part of the Committee on National Statistics of the National Research Council, the panel produced the volume At What Price? Conceptualizing and Measuring Cost-of-Living and Price Indexes, edited by Charles L. Schultze and Christopher Mackie (Washington, DC, National Academy Press, 2002).

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Consumer Price Index

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