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December 1996, Vol. 119,
No. 12
Overview of the 1998 revision of the Consumer Price Index
John S. Greenlees and Charles C. Mason
The Consumer Price Index (CPI) is the principal source of information concerning trends in consumer prices and inflation in the United States, and is one of the Nation’s most important economic indicators. The measure is used extensively for economic analysis and policy formulation in both the public and private sectors, and for escalation of contract amounts and other payments among individuals and organizations. The CPI also has a significant impact on the finances of the Federal Government. It is used to adjust payments to Social Security recipients, to Federal and military retirees, and for a number of entitlement programs such as food stamps and school lunches. An increase in the CPI increases Federal statutory obligations for these payments and programs. In addition, individual income tax brackets and personal exemptions are adjusted for inflation using the CPI. In this case, an increase in the CPI results in lower tax revenues. It is estimated, for example, that in fiscal year 1996, each 1-percent increase in the index produced a $5.7 billion increase in outlays and a $2.5 billion decline in revenues.1
To maintain the accuracy of the CPI, an up-dating of the index is undertaken approximately every 10 years. The most fundamental and visible activity in each of these CPI revisions is the introduction of a new "market basket," or set of expenditure weights attached to the categories of goods and services comprising the CPI. Because the next market basket introduction will occur in January 1998, the current revision effort is usually identified as the 1998 CPI revision. Revisions of the CPI are comprehensive, multiyear efforts, however, and the current revision is planned to be completed over a 6-year period ending in 2000. The projects and changes encompassed in the current revision—the sixth major revision in the CPI’s history—range from the reselection and reclassification of areas, items, and outlets, to the development of new systems for data collection and processing. This article provides a general description of those projects and changes, and directs the reader to additional articles in this issue for more in-depth treatment of several topics.
This excerpt is from an article published in the December 1996 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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Footnotes
1 Office of Management and Budget estimate, as reported
in BLS budget documents.
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