Comparison between Chained CPI‐U and Regular CPI‐U: All‐U.S. Indexes at Lower Item‐aggregate Levels (2000—2003)

Owen J. Shoemaker

Abstract

In February 2005, the BLS calculated and published its third annual set of C-CPI-U indexes—-for 2003. The C-CPI-U (Chained - Consumer Price Index - Urban) is calculated and published every year, with a one-year lag, using a Tornqvist formula. Its set of weights are updated yearly, so a unique set of monthly weights is available for both time t as well as for time t-n. The C-CPI-U can thus be labeled a "superlative" index. By contrast, the regular CPI-U uses weights that are, at a minimum, at least two years old. It also uses a combination (hybrid) of Geomeans and Laspeyres formulas as its final estimator. For 12-month price changes, the All-US-All-Items chained C-CPI-U index results continue to diverge (significantly lower) from regular CPI-U index results, but the divergences at the lower aggregate levels (major group level and then lower) are not significantly different, except in a few isolated item groups. In this paper, we investigate the nature of these lower-level divergences using newly calculated chained C-CPI-U standard errors to construct our confidence intervals.