Introducing the Chained Consumer Price Index

In August 2002, the U.S. Bureau of Labor Statistics began publishing a consumer price index (CPI) called the Chained Consumer Price Index for All Urban Consumers. Designated the C-CPI-U, the index employs a superlative Tornqvist formula and utilizes expenditure data in adjacent time periods in order to reflect the effect of any substitution that consumers make across item categories in response to changes in relative prices. The new measure is designed to be a closer approximation to a cost-ofliving index than the existing BLS measures. Expenditure data required for the calculation of the C-CPI-U are available only with a time lag. Thus, monthly values of the C-CPI-U are issued first in preliminary form using the latest available expenditure data and are subject to two subsequent revisions. Accordingly, at the time of its introduction in August 2002, Final values of the C-CPI-U were issued for the 12 months of 2000, values were issued for the 12 months of 2001, and Initial values were issued for January-July of 2002. In February 2003, with release of the January 2003 index, revised Interim indexes for the 12 months of 2002 were published, and the index values for 2001 were revised and became Final. This paper details the calculation of the C-CPI-U and discusses the issues that were addressed in its design. The paper also describes the differences between the new index and the existing Laspeyres-formula CPI-U, and the February 2003 data revisions.