A Better CPI

The monthly consumer price index (CPI) is the most oft-cited measure of inflation and one of the most important and closely watched statistics in the US economy. It is an indicator of how well the Federal Reserve is doing in achieving and maintaining low inflation, and it also is used to determine cost-of-living adjustments for many government programs, collective bargaining contracts, and individual income tax brackets. Since 1995, the Bureau of Labor Statistics (BLS) has been eliminating biases that cause the index to overstate inflation, and further changes will come in January 1999. These changes are expected to create a more reliable index and by 1999 will have lowered measured CPI inflation by more than half a percentage point. It is important that the CPI should measure inflation accurately or that the degree of bias be known. Changes to the index are inevitable as the BLS strives to maintain an accurate measure of inflation in our dynamic economy.