New CPI Estimation System To Be Introduced

Effective with the release of the January 2015 CPI on February 26, 2015, the Bureau of Labor Statistics (BLS) will utilize a new estimation system for the Consumer Price Index. The new estimation system, the first major improvement to the existing system in over 25 years, is a redesigned, state-of-the-art system with improved flexibility and review capabilities. In addition, this change eliminates paper in all steps of producing the CPI. The use of the Constant Elasticity of Substitution (CES) formula for initial and interim estimates of the C-CPI-U, and the new quarterly revision schedule for C-CPI-U indexes, are possible because of this new system. Also, as part of the redesign process, a small number of minor methodology changes, primarily affecting the imputation of price changes, were introduced.

Imputation of sampled items unavailable for pricing. When a sampled consumer item is temporarily unavailable, its price change is imputed by the price change of other items within a geographic area. In the current estimation system, these missing prices are imputed by all the price changes within a CPI item stratum. CPI item strata, though, are composed of one or more elementary level items, or ELIs. In the new estimation system, the price change will be imputed by price changes within its own ELI, instead of by all price changes within the potentially broader item stratum.

Similarly, price changes in the current estimation system CPI are imputed by a broad geographic definition called a CPI index area. CPI index areas are made up of one or more metropolitan areas called Primary Sampling Units, or PSUs. In the new estimation system, price changes will be imputed at the PSU level instead of the typically broader index area level.

In short, price changes in the new estimation system will be imputed by a narrower set of item and geographic source data.

This change in imputation does not have a significant effect on the estimates of price change for the U.S. All items index.

Imputation of off-cycle prices. Many CPI prices are collected on a bimonthly basis, but the CPI is calculated and published monthly. In the current estimation system, elementary indexes for items that are ‘off-cycle’ are imputed at no change to the current month, and combined with the monthly and ‘on-cycle’ elementary indexes to calculate the higher-level published indexes.

In the new estimation system, off-cycle indexes will no longer be used in the calculation of indexes. Instead, the prices themselves will be imputed, and thus more prices will be used directly in the calculation of the basic (item-area) indexes of the CPI.

Calculation of annual averages for bimonthly areas. Related to this change, the calculation of annual average indexes for areas published on a bimonthly basis will change. In both the current and new estimation systems, the calculation of annual averages is based on the average of 12 monthly indexes, including the six on-cycle published indexes, as well as an estimate of the off-cycle indexes.

In the current estimation system, an annual index for an area published on a bimonthly basis is based on its six published indexes, plus six geometrically interpolated off-cycle indexes.

In the new estimation system, BLS will calculate (instead of interpolate) the unpublished off-cycle indexes, and the calculated indexes for all 12 months will be used in the calculation of the annual averages for areas on a bimonthly publication schedule.

The net impact of these changes on the All Items U.S. City Average level is expected to be minimal.


Last Modified Date: October 21, 2014