THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Sunday, February 9, 1997 TAG: 9702080593
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 80 lines
Few numbers coming out of Washington's statistics mills are watched as closely as the Consumer Price Index.
That's why recent remarks by Federal Reserve Board Chairman Alan Greesnspan about overhauling the CPI attracted so much attention.
Any change in the way the key inflation measure is calculated could have consequences for tens of thousands of households in Hampton Roads. The government uses the CPI to adjust its payments to millions of Social Security recipients and military and federal civilian retirees.
Payments to Social Security recipients and to federal civilian and military retirees in Hampton Roads amounted to $2.7 billion in 1994. That was almost 10 percent of the region's total personal income for the year.
Millions of other Americans receive automatic adjustments to their wages and salaries based on the CPI. And the Internal Revenue Service applies the CPI to prevent taxpayers from being pushed into a higher bracket by inflation.
But there's heightened concern about the CPI's accuracy, and pressure is building to overhaul the inflation measure.
In December, a blue-ribbon advisory panel concluded that the index routinely overstates inflation and recommended overhauling it. More recently, the Federal Reserve's Greenspan urged Congress to appoint a commission that would examine ways to better calculate changes in consumer prices.
What does the CPI measure?
It tracks monthly changes in the prices that urban consumers pay for a fixed basket of goods and services. These include more than 200 items in seven categories: food and beverages, housing, clothing and upkeep, transportation, medical care, entertainment, and other goods and services.
Who compiles the index?
The Bureau of Labor Statistics, a unit of the Labor Department. Each month the bureau's representatives gather 90,000 prices by calling or visiting stores, hospitals, auto dealers, gas stations and other business establishments. The prices are given different weight according to the proportion of household income spent on particular goods and services. The current CPI market basket is based on consumer expenditures from 1982 to 1984.
How often does the Bureau of Labor Statistics revise its market basket and calculations?
The bureau routinely makes minor revisions. Every 10 years or so, it undertakes major readjustments to reflect changes in consumers' buying patterns. The next major revision is scheduled for 1998.
Sometimes the CPI has a U behind it. Sometimes it has a W tacked on. Is there a difference between the two?
Yes. The more widely used version, the CPI-U, is the Consumer Price Index for All Urban Consumers. This covers changes in consumer prices for about 80 percent of the U.S. population. A narrower measure, the CPI-W, is based on expenditures by urban wage earners and clerical employees. This index applies to prices paid by households where more than half of the income comes from clerical or wage occupations. This version takes in about 32 percent of the population.
What was the latest change in the CPI?
In December, the CPI for all urban consumers, the CPI-U, stood at 158.6. That was unchanged from November before seasonal adjustments. For the full year, the CPI-U was up 3.3 percent before seasonal adjustments. The CPI for January will be released Feb. 19.
What sorts of goods and services aren't included in the CPI?
The index disregards investment items, such as stocks, bonds and life insurance because these aren't related to day-to-day living expenses.
What are the CPI's weaknesses?
It doesn't take into account changes in consumer tastes or the substitutions consumers make when some items become more costly. Because the CPI focuses on the prices paid by urban consumers, it might not reflect price changes for households in rural areas.
What's the fastest way to find out where the CPI stands?
The Bureau of Labor Statistics has a recorded phone message - the CPI Quickline - with the latest figures. The phone number for the two-minute message is 202-606-6994. The bureau also provides information via the Internet (http://stats.bls.gov/cpihome.htm).
Are there other sources of information about the CPI?
The bureau distributes several publications, including a pamphlet, ``Understanding the Consumer Price Index.'' These are available by calling the bureau at 202-606-7000 between 8:45 a.m. and 4:45 p.m. Monday through Friday.
KEYWORDS: CONSUMER PRICE INDEX