July 7, 1999 (The Editor’s Desk is updated each business day.)

Housing prices usually restrained in CPI research series

In a new CPI research series, prices of housing increased at a slower pace than in the official CPI in most, but not all, of the years in the 1978-98 study period. During 15 of the 21 years, housing inflation was lower in the research series than in the official index, with the biggest reductions occurring at the beginning of the period.

[Chart data—TXT]

Between 1978 and 1980, housing prices in the research series grew much more slowly than in the official Consumer Price Index. The downward adjustment in 1979 was the largest, at 5.7 percentage points. The discrepancies between the two series of housing prices in the late 1970s and early 1980s were due primarily to the incorporation in the research series of the "rental equivalence" method. With this method, the homeownership component of the CPI is based on a flow-of-services approach rather than on the current cost of the purchase of a home; rental equivalence was first included in the official CPI in 1983.

Housing inflation was actually higher in the research series in five consecutive years during the 1980s. However, most of these differences were small except for 1982, when the rate of housing inflation in the research series was 3.1 percentage point above the official rate. Also, there was only one year in the entire study period in which there was no difference between the two series: 1998.

The BLS Consumer Price Index program produces CPI data. BLS has made numerous improvements to the CPI over the years, which have increased the accuracy of the index; however, the official historical price indexes are not adjusted to reflect the improvements. Find more information on the CPI research series in "CPI research series using current methods, 1978-98," by Kenneth J. Stewart and Stephen B. Reed, Monthly Labor Review preprint, June 1999. It is important to note that the CPI research series has certain limitations and that it is subject to revision. Annual percent changes are December-to-December changes.