Summary

Press reports have asserted that problems with economic statistics were hindering the formulation of economic policy. Studies reviewed by GAO indicate that technical problems could cause the Consumer Price Index (CPI) to overstate inflation, which could affect federal benefits and taxes tied to changes in the CPI. There is no agreement, however, on a specific estimate of the CPI's possible misstatement of inflation.

GAO found that: (1) many economists believe that several technical problems limit the Consumer Price Index's (CPI) accuracy in measuring inflation; (2) these technical problems could cause CPI to overstate inflation, although complete information on measurement errors is inconclusive; (3) the extent and direction of inflation measurement is important, since slight misstatements could significantly affect government costs; and (4) statistical limitations can affect the policymaking process by increasing policymakers' uncertainty about current economic conditions and the potential effectiveness of economic policies.