Something’s different about the consumer price index this month
Something’s different about the consumer price index this month
January’s consumer price index report, released Tuesday, was a bit of a mixed bag. Prices were up 6.4% since the same time last year, making January the seventh straight month of cooling year-over-year inflation since the CPI peaked at 9.1% over the summer.
But on a month-to-month basis, prices actually spiked 0.5%, fueled by the rising cost of food, housing and gasoline.
Another thing that changed between the December and January reports? The formula the Bureau of Labor Statistics uses to calculate the headline number.
The folks at the BLS aren’t just tasked with measuring economic changes; they also have to make sure their tools keep up with the times.
“So, this is a big reason why their jobs are hard,” said Wendy Edelberg of the Brookings Institution.
Tracking the changing cost of things like food, rent and energy is half the battle, she said. “That’s only meaningful, really, if we talk about how important each one of those things is to your family budget.”
The formula that price changes are plugged into needs to reflect how consumers are actually spending their money, Edelberg added.
For a while now, the BLS has adjusted the items in its metaphorical basket of goods and the weight assigned to each item every two years, said former BLS Commissioner Erica Groshen.
“It’s now going to update that market basket every year,” she said.
It’s also going to use consumer spending data from just one calendar year, rather than the average of two. “And that’s a very good thing,” Groshen said. “Because particularly in a time of rapid price changes, people adjust what they spend money on.”
According to her, more frequent updates based on more recent data will give us a more accurate snapshot of inflation.
It’s important to try to get that number right, said BLS economist Jonathan Church, because the CPI is used to calculate a lot of other things, like cost-of-living adjustments for Social Security payments.
“Thousands and thousands of contracts throughout the U.S. in which wages or rents are tied to the CPI. Many states have laws that tie increases in minimum wage to the CPI,” Church said.
Plus the index is one of the inflation measures the Federal Reserve uses to inform monetary policy.
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