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National
The CPI is a measure of the change in the cost of living between two periods in time. For example, if an average family had to spend $50 for groceries in 1988 and $150 for those same groceries in 1998, the CPI would have tripled in 10 years. BLS measures changes in these costs from year to year and reports on them in the form of two Consumer Price Indexes, the CPI-W and the CPI-U.
The CPI-W is the older index. It covers only urban wage earners and clerical workers and represents about 32 percent of the U.S. population. The CPI-U is the newer, broader index. It began in 1978 and represents the buying habits of about 80 percent of the U.S. population. It includes wage earners; clerical workers; professional, managerial, and technical workers; the self-employed; short-term workers; the unemployed; retirees; and others not in the labor force.
Many employers monitor the CPI closely because wages tend to follow changes in the cost of living. As goods become more expensive, workers require additional income to pay for them. Conversely, if prices remain relatively stable or begin to fall off, wage increases are seen less as a necessity and more as a luxury. Most large companies are constantly alert to changes in the CPI and base major decisions about compensation rates on these figures more than any other. Multiyear collective bargaining agreements often refer to wage “indexing,” a direct reference to the CPI. If an employer wants to keep pay levels and rate changes up-to-date and remain competitive in its industry, increasing them by the amount of the increase in the CPI is a sound and widely used practice.
Cost of living adjustments (COLA). The income of a large portion of the U.S. labor force is linked to the CPI. Employees with contracts or wage plans having automatic increases based on the index are included in this group. These increases are usually referred to as cost-of-living adjustments, or “COLAs.” In addition, Social Security, food stamps, welfare programs, and many other private and government employees' salaries, allowances, and pensions are calculated using the CPI.
The U.S. Department of Labor's Bureau of Labor Statistics (BLS) issues national data monthly; the CPI for some geographic areas is reported monthly and bimonthly or every 6 months for other areas. The figures are released around the 26th of each month and are widely reported in the media at that time. The latest available CPI figures and percents of increase in the index are also included with your monthly newsletter, which is part of this service.
For more information on CPI data, call the BLS in Washington, D.C., at 202-691-7000. CPI information may also be viewed on BLS's webpage at http://stats.bls.gov. You may also contact your regional BLS office for information.
A criticism of the CPI is that it takes expenditures from a fixed market basket of goods at some point in the past and does not reflect changing trends, buying patterns, and how consumers respond to price changes and new products.
For many years, the CPI was based on changes in buying habits dating from 1967. The index is now based on a 1993--1995 market basket, with references to both 1982--1984 and 1967 periods as a base. Critics argue that with technological advances alone, the index is not an accurate representation of American buying habits. For example, cellular telephones were just added to the 1998 revision of the CPI.
However, in December 1998, BLS announced that it will change the expenditure weights of items in its consumer price index-fixed market basket of goods and services every 2 years instead of every decade to reflect current buying patterns.
Local. Area CPI indexes are by-products of the national CPI. Since local indexes have smaller sample sizes than the national index, they are more subject to error. As a result, local area CPI indexes show more variation than the national index, although their long-term trends are similar. For this reason, BLS strongly urges users to consider adopting the national average CPI for use in their escalator clauses.
To calculate the change in the cost of living as measured by the CPI, use this formula: NEW minus OLD, divided by OLD, multiplied by 100. For example, calculating the CPI-U change from January 1997 (OLD) to January 1998 (NEW), you would figure as follows: 161.6 minus 159.1 = 2.5, divided by 159.1 = .015, multiplied by 100 = 1.5 percent. Please note that both the new and the old numbers must use the same base period. (Any 1967-based national CPI-U figure can be converted to the 1982--1984 base by multiplying it by 0.3338279. For the CPI-W, the multiplicand is 0.3357176.)
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National
The CPI is a measure of the change in the cost of living between two periods in time. For example, if an average family had to spend $50 for groceries in 1988 and $150 for those same groceries in 1998, the CPI would have tripled in 10 years. BLS measures changes in these costs from year to year and reports on them in the form of two Consumer Price Indexes, the CPI-W and the CPI-U.
The CPI-W is the older index. It covers only urban wage earners and clerical workers and represents about 32 percent of the U.S. population. The CPI-U is the newer, broader index. It began in 1978 and represents the buying habits of about 80 percent of the U.S. population. It includes wage earners; clerical workers; professional, managerial, and technical workers; the self-employed; short-term workers; the unemployed; retirees; and others not in the labor force.
Many employers monitor the CPI closely because wages tend to follow changes in the cost of living. As goods become more expensive, workers require additional income to pay for them. Conversely, if prices remain relatively stable or begin to fall off, wage increases are seen less as a necessity and more as a luxury. Most large companies are constantly alert to changes in the CPI and base major decisions about compensation rates on these figures more than any other. Multiyear collective bargaining agreements often refer to wage “indexing,” a direct reference to the CPI. If an employer wants to keep pay levels and rate changes up-to-date and remain competitive in its industry, increasing them by the amount of the increase in the CPI is a sound and widely used practice.
Cost of living adjustments (COLA). The income of a large portion of the U.S. labor force is linked to the CPI. Employees with contracts or wage plans having automatic increases based on the index are included in this group. These increases are usually referred to as cost-of-living adjustments, or “COLAs.” In addition, Social Security, food stamps, welfare programs, and many other private and government employees' salaries, allowances, and pensions are calculated using the CPI.
The U.S. Department of Labor's Bureau of Labor Statistics (BLS) issues national data monthly; the CPI for some geographic areas is reported monthly and bimonthly or every 6 months for other areas. The figures are released around the 26th of each month and are widely reported in the media at that time. The latest available CPI figures and percents of increase in the index are also included with your monthly newsletter, which is part of this service.
For more information on CPI data, call the BLS in Washington, D.C., at 202-691-7000. CPI information may also be viewed on BLS's webpage at http://stats.bls.gov. You may also contact your regional BLS office for information.
A criticism of the CPI is that it takes expenditures from a fixed market basket of goods at some point in the past and does not reflect changing trends, buying patterns, and how consumers respond to price changes and new products.
For many years, the CPI was based on changes in buying habits dating from 1967. The index is now based on a 1993--1995 market basket, with references to both 1982--1984 and 1967 periods as a base. Critics argue that with technological advances alone, the index is not an accurate representation of American buying habits. For example, cellular telephones were just added to the 1998 revision of the CPI.
However, in December 1998, BLS announced that it will change the expenditure weights of items in its consumer price index-fixed market basket of goods and services every 2 years instead of every decade to reflect current buying patterns.
Local. Area CPI indexes are by-products of the national CPI. Since local indexes have smaller sample sizes than the national index, they are more subject to error. As a result, local area CPI indexes show more variation than the national index, although their long-term trends are similar. For this reason, BLS strongly urges users to consider adopting the national average CPI for use in their escalator clauses.
To calculate the change in the cost of living as measured by the CPI, use this formula: NEW minus OLD, divided by OLD, multiplied by 100. For example, calculating the CPI-U change from January 1997 (OLD) to January 1998 (NEW), you would figure as follows: 161.6 minus 159.1 = 2.5, divided by 159.1 = .015, multiplied by 100 = 1.5 percent. Please note that both the new and the old numbers must use the same base period. (Any 1967-based national CPI-U figure can be converted to the 1982--1984 base by multiplying it by 0.3338279. For the CPI-W, the multiplicand is 0.3357176.)
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