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December 1996, Vol. 119, No. 12

Changing the item structure of the Consumer Price Index

Walter Lane

The Bureau of Labor Statistics calculates the Consumer Price Index (CPI) to measure the monthly average change in prices of the goods and services U.S. consumers buy to satisfy their daily needs. The CPI is the average change in the prices paid for a fixed set or "market basket" of goods and services that consumers bought during a selected period. The market basket needs to be modified occasionally, because, for example, consumers change their preferences or new products and services emerge. During these occasions, the Bureau reexamines the CPI item structure, which is the classification scheme of the CPI market basket. The item structure is a central feature of the CPI program and many CPI processes depend on it.

As part of the 1998 CPI revision, the Bureau of Labor Statistics will introduce fairly sweeping changes in the CPI item structure. The objective of the classification revision project was to improve the index by making the structure more effective for the various ways that the CPI is used. The primary goal is to produce the most accurate all items CPI. A secondary goal is to produce more detailed indexes that are meaningful and useful to our customers and valuable for analyzing the all items index.

Major changes to the CPI item structure are intentionally infrequent. BLS is well aware that it must not undertake changes to the item structure casually or capriciously. The item structure is so central to the CPI that changes to it inevitability impose some costs to the CPI program and some burden on CPI users. For these reasons, BLS is conservative in its consideration of structural changes. However, having an item structure that is too rigid or out of date can weaken or distort the index.

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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