Products October 2, 2003

BLS Changes CPI Measure

February 22, 2002 (PLANSPONSOR.com) - The Consumer Price Index (CPI), an economic indicator widely used by pension plans and social security officials to gauge inflation is undergoing changes so it will provide a more accurate cost-of-living picture.

Reported by

Fred Schneyer

The Bureau of Labor Statistics (BLS) says the new “chained” CPI will more accurately take into account “substitution bias” – a scenario in which consumers, choose a cheaper alternative over an expensive item.

Some experts believe the problem causes the traditional CPI to overstate inflation. The BLS said the new inflation gauge should move between 0.1% to 0.2% slower than the regular CPI annually.

The chained CPI is to be released for the first time in August, covering July data. The BLS will revise it twice more – in February 2003 and February 2004.

Updated

BLS officials are also changing the CPI by updating the proportional weighting of items in the imaginary “basket of goods” used to compile the index. The change should make the regular CPI more accurate, officials said.

Updating the weighting system should better reflect the value of new goods, the BLS said. The newer weighting would have changed January’s CPI reading of 0.3% to 0.2% (See BLS’ latest CPI announcement ).