How BLS Measures Changes in Consumer Prices
About the middle of each month, the Bureau of Labor Statistics (BLS) issues a news release on the change in retail prices that American consumers paid during the previous month. This report, the Consumer Price Index (CPI), is important because it provides a statistical measure of the nation's economic well-being. It shows how occurrences such as a drought in the midwest, a freeze in Florida or a disruption of crude oil supplies affect the pocketbooks of American households. The President, the Congress and the Federal Reserve Board use trends in the CPI to aid in formulating fiscal and monetary policy. Finally, the CPI is used both to adjust wages and salaries for millions of workers covered by collective bargaining agreements and to keep pensions, rents, royalties, alimony and child support payments in line with changing prices.

The process by which the Bureau measures price changes to consumers each month requires the efforts of hundreds of BLS employees and the patient cooperation of thousands of individuals in households and retail outlets throughout the country. The cycle begins during the first week of the month when highly-trained BLS field representatives collect price information from selected department stores, supermarkets, service stations, doctors' offices, rental units, etc. Each month, about 90,000 prices are recorded on each visit. The field representative collects prices on specific goods or services with precisely defined qualities or characteristics. If the selected item is available the representative records its price. If it is not, or there have been any changes in the quality of the item since the last time prices were collected, the representative will select a new item or record the quality change. By collecting price data on a clearly defined market basket of products that consumers purchase for their day-to-day living needs, BLS ensures that the CPI will provide an accurate measure of change in prices. The field representative goes to a specific store and location to collect price information based on a plan formed about a decade earlier that named 85 cities as representative of the nation.

The Bureau does not have the time or resources to price every good or service in every retail outlet in every urban area of the country. Therefore, a scientifically selected sample must be used to make the CPI representative of the prices paid for all goods and services purchased by consumers in all urban areas. In fact, the CPI is developed from a series of interrelated samples. These include a Consumer Expenditure Survey from a national sample of almost 29,000 families, which provides detailed information on spending habits. Thus BLS constructs the CPI market basket of goods and services and assigns each item a weight or importance based on total family expenditures. Another national sample of about 24,000 families serves as a point-of-purchase survey, which identifies the places where households purchase various types of goods and services. Finally, BLS uses current Census of Population data to select the urban areas where prices are collected and determine the housing units that are eligible for use in the shelter component of the CPI.

Clearly, extensive research and preparation pave the way for the field representatives' visits to collect price information. Once the information has been collected, it is immediately transmitted to Washington, D.C. for processing. The information is keypunched, and computer-generated listings of data that are outside the bounds of BLS expectations are distributed to BLS commodity specialists who have detailed knowledge about the goods or services priced. Data are checked for accuracy and consistency and corrected or adjusted if necessary. Next, computer programs calculate weighted changes in prices for the different components and areas. After further review by commodity analysts, other computer programs aggregate the data and convert them into indexes that show price changes for each category of items, each local area and the United States. Only then do BLS economists analyze the data and prepare the written reports that are used by other government agencies, the media and the public. The entire process of keying, reviewing, analyzing, and publishing is finished about 20 days after the last data are collected.

While the CPI is still being reported by T.V. and newspapers around the country, BLS field representatives are already hard at work collecting price information for the next month.