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Consumer Price Index: History

Although the official Consumer Price Index (CPI) began in 1919, origins of the CPI date back about 30 years earlier. The first major study conducted by the new Bureau of Labor (later to be renamed the Bureau of Labor Statistics) that influenced later work on a “cost of living” index was an examination of family expenditures and retail prices between 1888 and 1890.1

In 1901, BLS began to systematically collect retail prices for food as part of a consumer expenditures and income study. Between 1908 and 1920, much discussion arose concerning the statistical methods used to measure price change and the commodity content of an index designed to measure changes in the cost of living or more specifically, the general consumer price level. In the period of rapidly increasing prices during and immediately following World War I, it became increasingly clear that a measure of the change in food prices was not an adequate measure of the cost of living nor the general price level. Arbitration boards and commissions were considering many aspects of living costs in rendering rulings and settlement awards, and their demands for data helped to shape the scope, concept, and procedures for the index.2

BLS conducted studies of family expenditures in 92 industrial centers from 1917–19 in order to provide appropriate weighting patterns for the new, more comprehensive index that would become the CPI. Periodic collection of prices was started and, in 1919, the Bureau of Labor Statistics (BLS) began publication of separate consumer price indexes for 32 cities. Regular publication of a national index, the U.S. city average, began in 1921, and indexes were estimated back to 1913.

Since its inception, the CPI has been comprehensively revised on several occasions to implement the following: updated samples and weights, expanded coverage, and enhanced methodolo­gies. The improvements introduced over the years have reflect­ed not only the Bureau’s own experience and research, but also the criticisms and investigations of outside researchers.

Timeline

Hover over the red dot to see historical information.

Key developments

1913: First year official retail price data are available

  • In 1919 data were estimated back to 1913

1919: Began publication of separate indexes for 32 cities

  • Collected prices in central cities periodically
  • BLS used a 1917–19 study on family expenditures in 92 industrial centers to develop weights reflecting the relative importance of goods and services purchased by consumers.
  • Collected prices for major groups: food, clothing, rent, fuels, house furnishings, and miscellaneous
  • Limited pricing to items selected in advance to represent their categories

    1921: Began regular publication of a national index, the U.S. city average, based on an unweighted average of the city indexes

    • Estimated the U.S. city average back to 1913, using food prices only

      1940: The first comprehensive revision of the CPI

      • Used weights based on a 1934–36 study of consumer expenditures
      • Collected prices in the 34 largest U.S. cities
      • Implemented a weighted average of cities for the U.S. city average indexes

      1942–43: Improvements made during World War II

      • Discontinued the pricing of unavailable items, such as new cars and household appliances
      • Increased the weight of other items, including automobile repair and public transportation

      1950: Weight updates and new items added

      • Adjusted weights in seven cities, using a 1947–49 survey of consumer expenditures
      • Adjusted weights based on the 1950 Census
      • Adjusted rent index to remove “new unit bias” caused by rent control
      • Added new items to the list of covered items, including frozen foods and televisions

      1953: The second comprehensive revision

      • Used weights based on a 1950 survey of consumer expenditures conducted in central cities and attached urbanized areas
      • Added a sample of medium and small cities
      • Updated the list of items that the index covered, adding restaurant meals
      • Expanded the sample of rental units and added homeownership costs and improved pricing and calculation methods

      1964: The third comprehensive revision

      • Based weights on a 1960–61 survey of consumer expenditures in metropolitan areas
      • Added single-person households to the target population: urban wage earner and clerical worker households
      • Extended price collection of goods and services to the suburbs of sampled metropolitan areas
      • Updated the sample of cities, goods and services, and retail stores and service establishments 

      1966: Made quality adjustments for new vehicles at model changeover

      1967: Improved treatment of seasonal items

      1978: The fourth comprehensive revision

      • Added a new Consumer Price Index: the CPI for All Urban Consumers, or the CPI-U
      • Changed the name of the older CPI to the CPI for Urban Wage Earners and Clerical Workers, or the CPI-W
      • Based weights on a 1972–73 survey of consumer expenditures and the 1970 census
      • Expanded the sample to 85 areas (primary sampling units)
      • Increased minimum frequency for obtaining the prices of goods and services (known as “pricing”) from quarterly to bi-monthly
      • Implemented monthly pricing in the five largest areas
      • Introduced probability sampling methods at all stages of CPI sampling
      • Introduced checklists that define each category of spending to clarify what is included or excluded from an item (See appendix 2.)
      • Developed estimates of the CPI’s sampling error and optimal sample allocation to minimize that error
      • Began systematic replacement of retail outlets and their item samples between major revisions
        • Implemented a point-of-purchase survey (POPS)
        • Selected retail outlets with probability proportional to consumer spending therein
      • Eliminated reliance on outdated secondary-source sampling frames
      • Began rotating outlet samples every 5 years
      • Began rotating one-fifth of the CPI pricing areas each year 

      1987: The fifth comprehensive revision

      • Based weights on the 1982–84 Consumer Expenditure Survey and the 1980 Census
      • Updated samples of items, outlets, and areas
      • Began rotating item samples every 5 years
      • Redesigned the CPI housing survey
      • Improved sampling, data collection, data processing, and statistical estimation methods
      • Initiated more efficient sample design and sample allocation
      • Introduced techniques to make CPI production and calculation more efficient
      • Introduced rental equivalence concept in January 1983 for the CPI-U and in January 1985 for the CPI-W (Additional information on rental equivalence is available in a factsheet.) 

      1988: Improved housing estimator to account for aging of the sample housing units

      1992: Improved the handling of new models of vehicles and other goods

      1994: Improved seasonal adjustment methods

      1995: Implemented new sample procedures to prevent overweighting items whose prices are likely to rise

      1997: Changes made to hospital services

      • Initiated a single hospital services item stratum with a treatment-oriented item definition
      • Discontinued pricing of the inputs to hospital services

      1998: The sixth comprehensive revision

      • Based weights on the 1993–95 Consumer Expenditure Survey and the 1990 census
      • Updated geographic and housing samples
      • Extensively revised item classification system
      • Implemented new housing index estimation system
      • Used computer-assisted data collection
      • Added the Telephone Point-of-Purchase Survey (TPOPS) which allows rotation of outlet and item samples by item category and geographic area, rather than by area alone (this survey was previously conducted in person)

      1999: Developed the Consumer Price Index research series

      • Developed the Consumer Price Index Research Series, which is an estimate of the CPI for all Urban Consumers (CPI-U) from 1978 to present that incorporates most of the improvements made over that time span into the entire series

      1999: Initiated a new housing survey based on the 1990 census

      • Initiated a new housing survey based on the 1990 census that estimated price change for owners’ equivalent rent directly from rents (an estimate of the implicit rent owner occupants would have to pay if they were renting their homes)

      1999: Began using a geometric mean formula for most basic indexes

      • Began using a geometric mean formula for most basic indexes that mitigates lower level substitution bias and reflects shifts in consumer spending with item categories as relative price change

      1999–2000: Expanded the use of hedonic regression in quality adjustment

      2002: Addition of the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) and other changes

      • Implemented biennial weight updates
      • Implemented 4-year outlet rotation to replace 5-year scheme
      • Added the C-CPI-U in August
        • Uses more advanced “superlative” index formula (the Törnqvist formula)
        • Corrects upper-level substitution bias

      2003: Directed replacement of sample items in the personal computer and other categories, to keep samples current

      2004: Expanded collection of price data to all business days of the month

      • Expanded collection of price data to all business days of the month (Before 2004, prices were collected during the first 18 business days of the month for the first 10 months of the year and the first 15 business days for November and December.)

      2007: Began publishing indexes to three decimal places (January)

      2008: Added CPI-E and published it back to 1982

      • Congress mandated experimental consumer price index for older people (62 years of age and older)
      • CPI-E has limitations related to the expenditure weights, outlets sampled, items priced, and the prices collected    

      2010: Began a three-stage effort to improve the housing survey

      • First and second stages used the 2000 census
      • First stage was a 4-year sample augmentation with a goal of adding 16,000 units, mainly in neighborhoods with seriously depleted renter samples; this data was first used in the rent indexes for July 2010
      • Second stage was a sample replacement meant to replace the rental units introduced in 1999. The November 2012 CPI was the first that used a new sample from this stage and the May 2016 CPI was the first in which the housing survey sample was drawn entirely from the 2000 census.
      • The third stage was a regular replacement commencing in 2016 that will end in 2022. It will replace the 2000 census-based sample with one based on the American Community Survey using 2010 Decennial census geography. This stage will continue into the future and, for the first time, the CPI housing survey will have a process that keeps its sample continuously updated.

      2018: Geographic revision

      • Introduced a new geographic sample based on the 2010 Census
      • Changed the publication frequency for several local area indexes
      • Established new local area and aggregate indexes
      • Introduced census division-level index data                  

      2019: Changes to the CPI establishment frame

      • Replaced Telephone Point-of-Purchase Survey (TPOPS) as source of retail establishment frame with data from the Consumer Expenditure Surveys (CE)
      • Eliminates redundancies and inefficiencies in survey operations and reduces household burden
      • Use of Quarterly Census of Employment and Wages business registry to refine the location and address data from the CE
      Notes

      2 This discussion follows The Consumer Price Index: history and techniques, Bulletin No. 1517 (U.S. Bureau of Labor Statistics, 1966), p. 1-2.

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      Last Modified Date: November 24, 2020