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Friday, April 17, 2015

An Important Improvement in the Consumer Price Index

The Consumer Price Index (CPI) has measured price change in the U.S. economy for more than 100 years.

The index measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is one of the most widely used measures of inflation. Policymakers, government leaders, business executives, and others use the index as a guide in making and evaluating economic decisions.

As you might imagine, producing the CPI is a large and complex monthly undertaking that is subject to constant, careful review. We occasionally make minor changes to our process that are narrow in scope. However, we do not introduce any major changes without undertaking years of rigorous research and testing and informing stakeholders at each step of the process.

To underscore that point, we launched the first major improvement to the existing system in more than 25 years in February!

The new CPI estimation system changes are pretty technical. In short, the state-of-the-art processes we implemented give us key new flexibilities and efficiencies in how we calculate and measure price changes in the economy. It’s important to note the methodology underlying production of the CPI has not changed and the new system is not designed to produce a higher or lower estimate of price change.

As part of the redesign, we also eliminated paper completely in all review steps of producing the CPI. That’s not only good for the environment but also improves automation and accuracy in our work processes.

I’ve challenged my staff to get the best we can for the nation’s data dollar and to continually adapt our programs to meet the challenges of a changing economy. The redesigned CPI estimation system is a huge step toward those goals and provides us with the opportunity for more research and faster innovations in the future.

Measuring inflation is complicated but vitally important to support public and private decision making. Launching this estimation system was a huge undertaking, and I applaud the staff here at BLS who worked incredibly hard to make it a success.