Prarthana Magon, Undergraduate Research Assistant
Phoenix inflation remains resilient with modest 2.2% increase
The Consumer Price Index, or CPI, acts as a key indicator of inflation in the United States. It reflects the average change in prices for a fixed basket of goods and services typically purchased by urban consumers. This basket encompasses various categories across commodities and services, representing the typical spending patterns of a large portion of the population. The CPI serves as a valuable tool for understanding the purchasing power of the dollar over time. The CPI is the most noted measure of consumer inflation in the United States, and it is used by policy makers to understand and analyze the economy.
One specific variation within the broader CPI is the CPI for All Urban Consumers (CPI-U). This widely cited index represents the changes in prices experienced by the U.S. population residing in urban areas. It is often referred to simply as the “CPI” and serves as the headline inflation indicator for the country, providing crucial insights into the overall economic health and cost of living.
While the CPIU is the most widely known, the Bureau of Labor Statistics (BLS) publishes three other types of CPIs catering to different population groups and geographic areas:
- Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W): This index specifically tracks price changes for households headed by wage earners and clerical workers, representing a smaller demographic than the CPI-U.
- Chained Consumer Price Index for All Urban Consumers (C-CPI-U): This index uses a “chained” methodology that updates the basket of goods and services every year to reflect changing consumer spending patterns. This index accounts for how consumers substitute goods when their prices change. For example, if beef gets more expensive, people might buy more chicken instead. The C-CPIU reflects this by adjusting the basket of goods over time.
- Average Price Data: In contrast to targeting specific population groups, this category offers insight into the average prices of individual items included in the CPI calculation. By providing data on the average prices of commodities, it facilitates a more nuanced examination of specific product price fluctuations over time.
Latest Trends
Exhibit 1 details the 12-month percent change in the Consumer Price Index (CPIU) for all urban consumers, on a non-seasonally adjusted basis, across various metropolitan areas. The U.S. city average experienced a growth of 3.2% for the 12-month period ending in February. The highest increase among the tracked MSAs was observed in the Miami-Fort Lauderdale-West Palm Beach, FL area, where inflation surged to 4.9% during the same period. In contrast, Phoenix-Mesa-Scottsdale, AZ, registered the smallest 12-month increase at 2.2% for February. Notably, the Dallas-Fort Worth-Arlington MSA does not report CPIU all items data for even-numbered months and did not have a February release.
Exhibit 1: Consumer Price Index (CPIU) – All Items for All Urban Consumers
Exhibit 2 presents a comparative visualization between the United States and specific metropolitan areas, showcasing the changes in CPI (Consumer Price Index) for all items for all urban consumers over a 12-month period. This exhibit directly compares how the cost of living has evolved over time across the U.S. and for metropolitan areas in each Census region. Use your cursor to switch between the different values to compare changes in CPI between the national data and the different metropolitan areas.
Exhibit 2: Graphical Representation of Consumer Price Index (CPI) for All Items for All Urban Consumers
Data Breakdown
The Consumer Price Index for Urban Consumers (CPIU) provides data essential for understanding price movements within the economy. These data are compiled and categorized to offer comprehensive insights into inflation dynamics. CPI data is published for 23 metropolitan areas, 4 geographic regions, and 9 divisions as defined by the Census Bureau. Specifically, the CPIU offers both seasonally adjusted and non-seasonally adjusted data at the national level, however only non-seasonally adjusted data is available at the regional level. At the regional levels, CPIU data is published bimonthly for most items. However, exceptions exist, for example, in Phoenix, certain categories such as food at home, shelter, household energy, electricity and utility gas services, motor fuel, commodities less food, and energy are published every month, while all other items are published at even months.
Limits to the CPI
The Consumer Price Index (CPI) serves as a crucial measure of inflation, but it comes with inherent limitations that affect its accuracy and applicability. One significant constraint is that the CPI doesn’t necessarily reflect individual experiences with price changes. This is because the Bureau of Labor Statistics (BLS) bases market baskets and pricing procedures on the average household, rather than specific families or individuals. Personal inflation rates may differ widely based on unique spending patterns, meaning the national average may not mirror a specific consumer’s situation.
Moreover, the CPI is designed for the U.S. urban population, making it less applicable to rural areas where living costs and consumption patterns may differ significantly. There are no official estimates for subgroups like the elderly or the poor, further limiting its utility in assessing the economic well-being of specific demographics. Furthermore, the CPI cannot measure differences in price levels or living costs between different areas, as a higher index in one area doesn’t necessarily mean higher prices; it indicates faster price increases during the common reference period.
The CPI is a conditional measure and doesn’t encompass all factors affecting living standards, such as social and environmental changes or income tax variations. Sampling error is another limitation, as published CPI indexes may slightly differ from actual records due to the sampling approach used. To address this, variance estimates are employed, but persistent biases can still occur due to non-sampling errors, including issues in price data collection, logistical delays in surveys, defining concepts, and handling quality changes. Despite these limitations, continuous efforts, audits, and a research program aim to minimize errors and enhance the reliability of CPI data for economic analysis and decision-making.
Revisions to CPI
Revisions to the Consumer Price Index (CPI) are essential to maintain its accuracy and relevance in reflecting changing consumer buying habits, population distribution, and demographics. As consumer preferences evolve over time, the CPI undergoes revisions to ensure that it accurately reflects the goods and services most commonly purchased by households. The Annual Consumer Expenditure Surveys play a crucial role in this process, providing the Bureau of Labor Statistics (BLS) with the flexibility to monitor and adapt to changing buying habits. Additionally, the U.S. Census Bureau’s decennial census assists in reselecting a new geographic sample that reflects the current population distribution, enabling the CPI to better capture regional variations. The BLS continually engages in research to develop and implement improved statistical methods for enhancing the CPI, ensuring that it remains a reliable measure of inflation that accurately reflects changes in the cost of living for American consumers.
Interpretation of the CPI
Interpreting the Consumer Price Index (CPI) index involves understanding its reference base and how changes in the index reflect price movements over time. Typically, CPI index series have a reference base of 1982-1984=100, established by the Bureau of Labor Statistics (BLS). In this system, the BLS sets the average index level for the period covering 1982-1984 as 100, using it as a benchmark to measure changes in prices relative to that figure. For instance, if the index reads 110, it indicates a 10% price increase since the reference period, while an index of 90 suggests a 10% decrease in prices. However, different starting indexes can lead to the same percent change in prices despite different index point changes. The percent change calculation involves dividing the change in index points by the starting index value and multiplying by 100. This approach provides a clearer understanding of the magnitude of price fluctuations over time and allows for meaningful comparisons across different periods.
Collection Methods
The Bureau of Labor Statistics (BLS) employs comprehensive data collection methods to ensure the accuracy and reliability of the Consumer Price Index (CPI). Data collection extends across various sectors, including retail stores, service establishments, rental units, and doctors’ offices throughout the United States. The collection process involves two primary surveys: one focused on commodities and services, encompassing 94,000 prices per month, and another survey specifically targeting rental housing units, with 8,000 rental unit quotes collected monthly. To maintain accuracy, data collectors gather price information for specific items, noting any changes in quality or availability. Prices are gathered continuously throughout the month to compute the CPI, ensuring a representative reflection of the overall price level for the entire month. The month is divided into three pricing periods to balance data collection, with rent prices being a notable exception, collected at any time during the month. Specialists at the national office review collected data for accuracy and consistency, making necessary adjustments to account for changes in product size, quantity, or quality, thereby ensuring the CPI accurately reflects price changes.
Sample Frame and Calculation
The Consumer Price Index (CPI) calculation relies on interrelated samples selected from various data sources, including the U.S. Census and the Consumer Expenditure Survey (CES). The CES, which tracks 20,000 independent interview surveys and 11,000 independent diary surveys annually, aids in identifying where households purchase goods and services, forming the CPI outlet sample. Urban areas are chosen from Census data for price data collection, ensuring representation across diverse geographic regions. BLS statisticians utilize CES data to assign specific items to outlets, considering the share of revenue each item category contributes to the outlet’s overall income. Items selected for inclusion in the CPI are weighted based on their significance in the spending patterns of relevant population groups, with the weights of commodities and services adding up to 100%. Recorded price changes are then aggregated and weighted, providing a comprehensive and accurate measurement of price change for all items in all outlets across priced areas, forming the basis of the CPI.
Construction of the CPI Sample
The Consumer Price Index (CPI) sample is constructed to accurately represent the purchasing patterns of consumers across various categories. Specific items are chosen for inclusion in the CPI sample through a systematic process known as initiation, typically conducted in person by a dedicated data collector. During initiation, a particular item is selected from a designated category at a store, with the selection based on the item’s popularity and sales distribution within its category.
The likelihood of selection is determined based on the item’s popularity, ensuring that items with higher demand have a greater chance of being included in the sample. Utilizing principles of random sampling theory, one type, brand, and container size of the item are objectively chosen to ensure fairness and impartiality in the selection process.
Once selected, the chosen item is priced monthly or bimonthly in the same outlet until it is replaced after four years. This consistent repricing schedule allows for the tracking of price changes over time, providing valuable data on inflation trends. Repricing is typically conducted in person by data collectors, although it can also be done via telephone or internet, ensuring flexibility and efficiency in data collection methods.
The CPI sample comprises a diverse range of specific items within each category, reflecting the varied purchasing habits and preferences of consumers. By incorporating a wide array of items, the CPI sample accurately captures changes in the cost of living experienced by consumers, providing invaluable insights into inflation dynamics and economic trends.
Upcoming Data Releases
The release of CPI data for March 2024 will be released on Apr. 10, 2024. Detailed information regarding the national data releases for the Consumer Price Index (CPI) can be found here.
