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Current Indicators
The Consumer Price Index (CPI) is a measure of the average changes in prices over time of a fixed market basket of goods and services. The Bureau of Labor Statistics publishes CPIs for two population groups: (1) a CPI for All Urban Consumers (CPI-U), which covers approximately 87 percent of the total population, and (2) a CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers 32 percent of the population. The CPI-U includes, in addition to wage earners and clerical workers, groups such as professional, managerial, and technical workers, the self-employed, short term workers, the unemployed, and retirees and others not in the labor force.
Examples of how to Use CPI
• Purchasing Power of the Dollar:
To convert the value of the current dollar (1999) into purchasing power in an earlier year, based on the Consumer Price Index, take the earlier year CPI and divide by the later year CPI. The quotient represents (in dollars) how much it took then to purchase what now costs a dollar.
Example:
1989 average CPI= 123.967
1999 average CPI = 166.575
123.967/166.575 = 0.744 This means that what you could purchase in 1989 for $0.75, in 1999 now costs $1.00.
Example:
To compare the price of gasoline in Phoenix in 1989( $0.947) to the price in 1999 ($1.175) convert the 1989 price into 1999 dollars.
First divide the 1999 CPI by the 1989 CPI, then multiply this quotient by the price of gasoline in 1989.
(166.575/123.967)x($0.947) = $1.272
This is the price of a gallon of gas in 1989 measured in 1999 dollars.
Now compare the 1989 adjusted price of $1.272 with the 1999 price of $1.175 to find that a gallon of gasoline was actually more expensive in 1989 than in 1999.
• CPI Percentage Change
To calculate the percentage change in the CPI subtract the earlier CPI from the later CPI and then divide the difference by the earlier CPI.
Example:
Find the percent change in the CPI from 1989 to 1999.
(166.575 - 123.967)/123.967 = 0.344. This means CPI rose by 34.4% between 1989 and 1999.
Note: Both an annual series representing the average CPI for each year and a monthly CPI series are available. In the examples above, the annual averages were used.
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The CPI is based on the prices of food, clothing, shelter, and fuels, transportation fares, charges for physicians' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected in 87 urban areas across the country from about 50,000 housing units and approximately 23,000 retail establishments -- department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 87 locations. Prices of most other commodities and services are collected every month in the three largest metropolitan areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or phone calls of the Bureau's trained representatives.
In calculating the index, price changes for various items in each location are averaged together with weights that represent their importance in the spending of the appropriate population group. Local data are then combined to obtain a U.S. city average. Separate indexes are published by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for 26 local areas. Area indexes do not measure differences in the level of prices among cities; they measure only the average change in prices for each area since the base period.
The index measures the change from a designed reference point date --1982-84, which equals 100.0. An increase of 16.5 percent for example, is shown as 116.5. This change can also be expressed in dollars as follows: the price of a base period market basket of goods and services in the CPI has risen from $10 in 1982-84 to 11.65.
For further details see BLS Handbook of Methods, Chapter 17, the Consumer Price Index, Bulletin 2490, April 1997.
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