Consumer Price Index and Colas

The BLS uses a cost-of-living framework in making practical decisions about constructing the CPI, but the CPI differs in important ways from a complete cost-of-living index (COLI), as noted above. A COLI would measure changes over time in the amount that consumers need to spend to reach a certain level of living ("utility level," in economics terminology). Like the CPI, a COLI would reflect changes in the prices of goods and services, such as food and clothing, that are directly purchased in the marketplace. However, a complete COLI would go beyond this to take into account changes in governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the correct treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime, that would be in a complete cost-of-living framework.