With the release of January 2022 indexes, the BLS updated the spending weights used to calculate the Consumer Price Index (CPI). Previously, weights reflected consumer spending in 2017 and 2018 and were replaced to reflect changes to consumer spending from 2019 and 2020. In August 2021, the BLS announced interventions that were considered to mitigate possible measurement errors caused by the COVID-19 pandemic during 2020, but the standard biennial update procedure was ultimately chosen. This information page provides more detail regarding that decision.
The CPI measures the change in the cost of goods and services purchased by consumers from one period to the next. Household spending weights are used to average the changes in component goods and services into the All-items index. In the first 50 years of producing the CPI, the BLS updated the spending weights roughly every 10 to 15 years based on spending information collected in periodic household surveys. In the 1980s the Consumer Expenditure Surveys (CE) became continuous and the BLS began updating the CPI spending weights every two years, starting in 2002, when the CE sample was increased to support more frequent weight updates.
Based on the collection and processing time of the CE data, the biennial spending weight update schedule resulted in CPI spending weights lagged, on average, 36 months from the date of the index. For example, consumer purchases made in 2017 and 2018 were used by BLS as the spending weights in January 2020 through December 2021 for the CPI-U, CPI-W, and R-CPI-E indexes.
While the BLS calculated the CPI using a fixed market basket through 2020 and 2021, consumers changed their spending patterns in response to the COVID-19 pandemic. The Census Bureau, the agency administering the CE survey on behalf of BLS, was able to pivot quickly to ensure continuous collection of high-quality consumer expenditure data in 2020. There are several reports published on BLS.gov examining the impact of COVID-19 protocols on CE data quality. According to data collected in the CE, consumer spending on apparel in 2020 was down over 20 percent compared with 2019 (2020 CE Annual Report). Consumers shifted their food consumption away from restaurants (spending on food away from home down over 30 percent) towards groceries (spending on food at home up over 10 percent). Spending on public transportation (which includes airfare) was down over 60 percent, but spending by homeowners on their homes, for example on home maintenance and repair, increased over 14 percent.
Throughout the pandemic, BLS was planning for the next biennial weight update for the CPI-U to be effective with the release of the January 2022 index in February 2022, and to remain in effect through publication of the December 2023 indexes. Ordinarily, consumer spending data in 2019 and 2020 would form the basis of this update. Given the large changes to consumer spending in 2020, we had to determine if those data would be relevant for measuring price change in 2022 and 2023.
To address this, it is helpful to remember the goal of a spending weight update is not to predict consumer spending in 2022 and 2023, but rather fix the weights at most recent time period possible (i.e. 2021 levels). Consumer spending from 2021 is the most up-to-date annual calendar period as of January 2023. If consumers in 2021 reverted to their pre-pandemic spending behavior, the BLS could use 2019 consumer spending data as the source of spending weights. Alternatively, if consumer spending in 2021 more closely resembled spending behavior at the beginning of the pandemic, the BLS could use 2020 consumer spending data as the source of spending weights.
As of February 2022, CE data for 2021 was still undergoing processing, but other sources of consumer spending data at the time indicated 2021 is an anomalous year in many respects. The BLS looked at the Bureau of Economic Analysis (BEA) estimates of consumer spending (Personal Consumption Expenditure) and estimates of retail sales from the Census Bureau. Private sector data on credit card transactions are also informative. During the pandemic, BEA began publishing estimates of consumer spending using credit card transaction data it acquired from the private sector. Opportunity Insights is a non-profit organization that also uses credit and debit card data to provide timely estimates of consumer spending. These data sources showed spending in 2021 resembled 2020 for many categories. In the first three quarters of 2021, consumers maintained elevated spending on food at home and lower spending on admissions to spectator events. Other spending, for example on apparel and food away from home (such as restaurants), had increased above low levels in 2020.
While none of these measures are directly comparable to the scope and methods of the CE, analyzing their changes in recent years revealed general trends that inform the understanding of consumer spending in 2021 and how it compared to spending in 2019 and 2020. Overall, spending behaviors in 2020 remained relevant in describing spending for many categories. For other categories where spending had returned to pre-pandemic levels, 2019 was the most relevant year. From an analysis of these data, the BLS concluded the standard procedure to average spending data over 2019 and 2020 was the best option to proxy 2021 as the basis for the new market basket to calculate January 2022 indexes.
Last Modified Date: February 10, 2023