Payroll employment increases by 164,000 in April; unemployment rate edges down to 3.9%

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32. Is the CPI a cost-of-living index?

9. Is the CPI a cost-of-living index?

The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. We use a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, and not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this role to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime, that would constitute a complete cost-of-living framework. Since the CPI does not attempt to quantify all the factors that affect the cost-of-living, it is sometimes termed a conditional cost-of-living index.

Traditionally, the CPI was considered an upper bound on a cost-of-living index in that the CPI did not reflect the changes in buying or consumption patterns that consumers would make to adjust to relative price changes. The ability to substitute means that the increase in the cost to consumers of maintaining their level of well-being tends to be somewhat less than the increase in the cost of the mix of goods and services they previously purchased.

Since January 1999, a geometric mean formula has been used to calculate most basic indexes within the CPI; in other words, the prices within most item categories (for example, apples) are averaged with the use of a geometric mean formula. This improvement moves the CPI closer to a cost-of-living measure, because the geometric mean formula allows for a modest amount of consumer substitution as relative prices within item categories change.

The Chained CPI (C-CPI-U) also allows for substitution across item categories, and is thought by some to be a closer approximation to a cost-of-living index. However, the expenditure data used to compute the final C-CPI-U isn't available until 10-12 months after the reference month, so a preliminary estimate of the index is published and later revised.

Additional information about the Chained CPI is available on the Chained Consumer Price Index webpage.

Chained Consumer Price Index For All Urban Consumers (C-CPI-U)

The Bureau of Labor Statistics first began publishing the Chained Consumer Price Index for All Urban Consumers in August 2002. Designated the C-CPI-U, the index supplements the existing indexes already produced by the BLS: the CPI for All Urban Consumers (CPI-U) and the CPI for Urban Wage Earners and Clerical Workers (CPI-W).

• Questions and Answers page about the C-CPI-U.
• Methodology
• Introducing the Chained Consumer Price Index
• Historical Chained Consumer Price Index (August 2017)

Related Articles

Comparison between Chained CPI-U and Regular CPI-U All-US Indexes in the Housing Sector (2000-2004) (PDF)
Comparison between Chained CPI-U and Regular CPI-U All-US Indexes at Lower Item-Aggregate Levels(2000-2003) (PDF)
Random Errors and Superlative Indexes (HTML)
For additional information on the C-CPI-U contact the CPI information office at [e-mail] or 202-691-7000.

Last Modified Date: January 12, 2018

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