The CE and the Consumer Price Index

Overview

• The Consumer Price Index (CPI) is the country’s chief measure of retail inflation. It is a measure of the change over time in the prices for a market basket of consumer goods and services. The market basket is a set of items that is priced over time to see how the cost of these items change.
• The CPI represents virtually all goods and services purchased for consumption by the U.S. urban population.
• The CPI is the chief measure compiled by the U.S. government that shows changes in the purchasing power of an American consumer’s money.

How CE data are used in the CPI

1. The BLS combines the spending information from respondents across the country to see how much is spent on each type of item.
2. All reported expenses are used to estimate how much urban households spend on each item.
3. These estimates are used to construct the market basket which contains a representative sample of expenses.
4. The BLS conducts another survey to find out where consumers purchased items in the market basket.
5. BLS data collectors visit housing units and a sample of the identified stores to obtain current price information on about 80,000 items each month across the country.
6. The BLS combines the information about the items purchased, the expenditures on these items, and their current prices to calculate the CPI.

Importance of the CPI

The CPI affects nearly all Americans by:

• Informing Federal decision-makers. The CPI provides monthly information about price changes which is used by the government, business and many others to make economic decisions. The President, Congress, and the Federal Reserve Board use trends in the CPI to help them make policy decisions. The CPI is often used to evaluate the effectiveness of government economic policy.
• Adjusting dollar values. The CPI is used to automatically provide cost-of-living income adjustments to millions of American workers and retirees, and to adjust income eligibility levels for government programs and government assistance.
• The CPI affects almost all Americans.
• • 53.0 million Social Security beneficiaries.
  • About 25.7 million food stamp recipients.
  • About 4.5 million military and Federal Civil Service retirees and survivors.
  • Over 29 million children who receive subsidies for school lunches.
  • Almost 2 million workers under collective bargaining agreements.
  • Federal income tax brackets are adjusted each year by the CPI affecting all taxpayers.

Last Modified Date: April 7, 2011