Consumer Price Index and Colas

There have been many improvements in the CPI over the years, a number of them resulting from research conducted within the BLS. The latest major external review of the CPI followed Senate Finance Committee hearings in the spring of 1995. As a result of the hearings, the committee appointed an advisory commission to study the CPI and make recommendations for methodological improvements. The commission's report, Toward a More Accurate Measure of the Cost of Living, informally referred to as the "Boskin Commission Report," did not identify new issues but did result in focusing greater attention on known limitations of the index.

The CPI program has developed experimental indexes of consumer prices. Only two are described here.

The one most relevant to this volume is referred to as the Experimental Consumer Price Index for Americans 62 Years of Age and Older (CPI-E). The question addressed with this index is how price increases faced by older persons living in urban areas of the United States differ from those faced by all consumers living in urban areas.

The other is the Consumer Price Index Research Series Using Current Methods (CPI-URS). This index incorporates most of the improvements in the CPI-U that have been made since 1978. A question that could be addressed with this experimental index is what would have been the measured rate of inflation since 1978 if the methods currently used in calculating the CPI-U had been in use since 1978. When consistent CPIs are preferred for deflating, this measure gives somewhat different results than the official CPI-U. Such applications include the Bureau of Economic Analysis's use of the CPI-U-RS in its 1999 comprehensive revision of the National Income and Product Accounts; the BLS Office of Productivity's use of the index in its measure of real hourly compensation for its quarterly measure of labor productivity and costs; and the Bureau of the Census's use of the CPI-U-RS for its estimates of historical real income.