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June 1999, Vol. 122, No. 6

CPI research series using current methods, 1978-98

Kenneth J. Stewart and Stephen B. Reed

The Consumer Price Index (CPI) is the most widely used measure of inflation in the United States and affects nearly all Americans. Annual cost-of-living adjustments (COLAs) for Social Security recipients and Federal and military retirees are tied to changes in the CPI, which also is used to determine the annual escalation of Federal income tax brackets, as well as personal exemption and standard deduction amounts. In addition, the CPI is used in the calculation of many key economic indicators that require real- or constant-dollar meas-ures, including estimates of income, earnings, productivity, output, and poverty.

The Bureau of Labor Statistics has made numerous improvements to the CPI over the past quarter-century. While these improvements make the present and future cpi more accurate, historical price index series are not adjusted to reflect the improvements.1 Many researchers, however, would like a historical series that was measured consistently over the entire period. Accordingly, this article presents an estimate of the CPI-U from 1978 to 1998 that incorporates most of the improvements made over that time span into the entire series. The new measure, called the CPI research series using current methods (CPI-U-RS), attempts to answer the question, "What would have been the measured rate of inflation from 1978 forward had the methods currently used in calculating the CPI-U been in use since 1978?"2

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1 Historical cpi indexes are occasionally revised when data-collection or data-processing errors are discovered. Methodological improvements, however, do not result in revisions to the data.

2 Researchers outside the Bureau have attempted to estimate what the CPI would have been had improvements to it been in place earlier. (See, for example, Dean Baker, Getting Prices Right: A Methodologically Consistent Consumer Price Index, 1953–94 (Washington, DC, Economic Policy Institute, 1996); and Richard Bavier, Updating the poverty thresholds with expenditure data, poverty measurement working paper (Bureau of the Census, 1998).) Others, such as the Congressional Budget Office and Council of Economic Advisers, have estimated the effect of recent improvements to the CPI on the projected (future) rate of inflation. General estimates of bias in the CPI relative to a cost-of-living index have also been made by many groups and individuals, including the Advisory Commission to Study the Consumer Price Index (widely known as the Boskin Commission), the Congressional Budget Office, and the Federal Reserve Board.

Related BLS programs
Consumer Price Indexes

Related Monthly Labor Review articles
Incorporating a geometric mean formula into the CPI.Oct. 1998.
Overview of the 1998 revision of the Consumer Price Index.Dec. 1996.
Apparel price indexes: effects of hedonic adjustmentMay 1994.

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