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Everything you ever wanted to know about the Consumer Price Index
Hat tip, the letters to the editor column in the WaPo last weekend.
Opinion | Readers critique The Post: There’s more to life than politics
Caution! You are about to enter the All Spin Zone.
By Letters to the Editor
October 18, 2024 at 2:20 p.m. EDT
A pearl of great prices
As someone who had a long career as a government statistician and data analyst, I read John Lanchester’s lengthy Sept. 29 Opinion essay, “The number,” with rapt attention. I thank him for detailing the Bureau of Labor Statistics’ role in counting almost everything and, in particular, developing the consumer price index.
However, Lanchester erred in writing, “The census is vitally important because any government needs to know how many citizens it has and where they live.” It is not just citizens that the Census Bureau must count; it is all people in the United States, including those who are not here lawfully. The distinction matters because, at a time in which immigration is a major policy issue, census data provides a wealth of information on both citizens and noncitizens.
Lisa Roney, Washington
“The number” is, in my opinion, nonpareil — the best-considered and best-written piece to have appeared in your unfortunately left-leaning and factually questionable publication in the past 30 years. Thank you!
Gregory Caswell, Front Royal, Va.
Caution! You are about to enter the All Spin Zone.
By Letters to the Editor
October 18, 2024 at 2:20 p.m. EDT
A pearl of great prices
As someone who had a long career as a government statistician and data analyst, I read John Lanchester’s lengthy Sept. 29 Opinion essay, “The number,” with rapt attention. I thank him for detailing the Bureau of Labor Statistics’ role in counting almost everything and, in particular, developing the consumer price index.
However, Lanchester erred in writing, “The census is vitally important because any government needs to know how many citizens it has and where they live.” It is not just citizens that the Census Bureau must count; it is all people in the United States, including those who are not here lawfully. The distinction matters because, at a time in which immigration is a major policy issue, census data provides a wealth of information on both citizens and noncitizens.
Lisa Roney, Washington
“The number” is, in my opinion, nonpareil — the best-considered and best-written piece to have appeared in your unfortunately left-leaning and factually questionable publication in the past 30 years. Thank you!
Gregory Caswell, Front Royal, Va.
WHO IS GOVERNMENT?
A SERIES FROM POST OPINIONS
The Number
John Lanchester on the Bureau of Labor Statistics
By John Lanchester
September 24, 2024 at 8:00 a.m. EDT
Share
https://wapo.st/3BMWtk8
{snip}
A consumer price agent checks prices for the consumer price index on Sept. 21, 1971. (Thomas J. O’Halloran/Library of Congress Prints and Photographs Division)
{snip}
Employees of the graphics presentation section of the Labor Department work on consumer price index charts in October 1963. (Warren K. Leffler/Library of Congress Prints and Photographs Division)
{snip}
There is something intellectually thrilling about this: millions of data points, from tens of thousands of sources, being recorded, categorized, quantified, analyzed and weighted, through the labor of thousands of people, and all of it to produce one single, apparently simple and self-explanatory number. It is the principle of e pluribus unum, applied to data. All that work ends with a single number to represent all inflation, the CPI-U, which, at the time of writing, stands at 2.9 percent. (U stands for “all urban consumers” — about 93 percent of the U.S. population.)
Nothing about this is self-evident, though much of it, when you look underneath the hood, is the product of a rarefied form of common sense. The CPI in its modern form is the result of a continuing series of debates and arguments in the area where economics and politics overlap. The first attempt at producing a single number for inflation began in 1921, using data that had begun to be collected in 1913. The data for this “cost of living index,” as it was called, was collected from a survey of White wage-earner families in 92 cities. The collection of goods used to measure inflation is known as a basket, and that first basket contained items that seem less essential today: a straw boater, for example. The category of beef cuts is wonderfully specific, and there’s a helpful diagram of a cow to assist the person compiling the data.
The inflation basket has changed over time, and so has awareness of the different rates of inflation that apply to different citizens. The older index for urban wage earners was in 1978 renamed the CPI-W, and the newer index for all urban consumers — today the standard measure of inflation — became the CPI-U. And then there’s the reality of substitution, as economists call it: the fact that as prices change, our behavior changes, too. The CPI can go up so much that it forces your spending to go down. As beef becomes more expensive, we switch to pork or chicken; if you can’t afford prime cuts to cook a steak, you use cheaper cuts to make a casserole. The BLS acknowledges this through an index that attempts to track substitution: the “chained CPI” or C-CPI-U. It was introduced in 2002. There is also a separate index for older Americans, CPI-E, introduced in 2008 after being mandated by Congress. This happened in response to political concerns that older people have different needs and spending patterns not reflected in the ordinary CPI-U. A cynic would point to older folks’ tendency to turn out and vote. All these emendations reflect the fact that inflation indexes are things that are made, created through intellectual and practical work, and are prone to give different answers when different questions are asked. It has never not been argued over, and it is often the case that people like the CPI when it’s telling them something they want to hear and level furious accusations against it when it’s saying something inconvenient.
The end product of this is a paradoxical number. For one thing, it is possible that it doesn’t often correspond to reality. As the BLS itself points out, because people’s lives are so different, it seldom mirrors a particular consumer’s experience. In particular, the poor tend to suffer higher inflation than the rich. Better-off people have assets, which, broadly speaking, rise in value as inflation climbs. Poorer people don’t, and they spend a bigger proportion of their income on those basics of life that are particularly exposed to surges in inflation: food and fuel. These are part of what is called “noncore inflation,” a strange term that tries to separate out from the rest of the economy the part of inflation that is chronically affected by fluctuating prices. But if you’re poor, there’s nothing noncore about the cost of the food on your plate or the gasoline in your tank: They are central to your experience of living day to day. Noncore is as core as it gets.
{snip}
A SERIES FROM POST OPINIONS
The Number
John Lanchester on the Bureau of Labor Statistics
By John Lanchester
September 24, 2024 at 8:00 a.m. EDT
Share
https://wapo.st/3BMWtk8
{snip}
A consumer price agent checks prices for the consumer price index on Sept. 21, 1971. (Thomas J. O’Halloran/Library of Congress Prints and Photographs Division)
{snip}
Employees of the graphics presentation section of the Labor Department work on consumer price index charts in October 1963. (Warren K. Leffler/Library of Congress Prints and Photographs Division)
{snip}
There is something intellectually thrilling about this: millions of data points, from tens of thousands of sources, being recorded, categorized, quantified, analyzed and weighted, through the labor of thousands of people, and all of it to produce one single, apparently simple and self-explanatory number. It is the principle of e pluribus unum, applied to data. All that work ends with a single number to represent all inflation, the CPI-U, which, at the time of writing, stands at 2.9 percent. (U stands for “all urban consumers” — about 93 percent of the U.S. population.)
Nothing about this is self-evident, though much of it, when you look underneath the hood, is the product of a rarefied form of common sense. The CPI in its modern form is the result of a continuing series of debates and arguments in the area where economics and politics overlap. The first attempt at producing a single number for inflation began in 1921, using data that had begun to be collected in 1913. The data for this “cost of living index,” as it was called, was collected from a survey of White wage-earner families in 92 cities. The collection of goods used to measure inflation is known as a basket, and that first basket contained items that seem less essential today: a straw boater, for example. The category of beef cuts is wonderfully specific, and there’s a helpful diagram of a cow to assist the person compiling the data.
The inflation basket has changed over time, and so has awareness of the different rates of inflation that apply to different citizens. The older index for urban wage earners was in 1978 renamed the CPI-W, and the newer index for all urban consumers — today the standard measure of inflation — became the CPI-U. And then there’s the reality of substitution, as economists call it: the fact that as prices change, our behavior changes, too. The CPI can go up so much that it forces your spending to go down. As beef becomes more expensive, we switch to pork or chicken; if you can’t afford prime cuts to cook a steak, you use cheaper cuts to make a casserole. The BLS acknowledges this through an index that attempts to track substitution: the “chained CPI” or C-CPI-U. It was introduced in 2002. There is also a separate index for older Americans, CPI-E, introduced in 2008 after being mandated by Congress. This happened in response to political concerns that older people have different needs and spending patterns not reflected in the ordinary CPI-U. A cynic would point to older folks’ tendency to turn out and vote. All these emendations reflect the fact that inflation indexes are things that are made, created through intellectual and practical work, and are prone to give different answers when different questions are asked. It has never not been argued over, and it is often the case that people like the CPI when it’s telling them something they want to hear and level furious accusations against it when it’s saying something inconvenient.
The end product of this is a paradoxical number. For one thing, it is possible that it doesn’t often correspond to reality. As the BLS itself points out, because people’s lives are so different, it seldom mirrors a particular consumer’s experience. In particular, the poor tend to suffer higher inflation than the rich. Better-off people have assets, which, broadly speaking, rise in value as inflation climbs. Poorer people don’t, and they spend a bigger proportion of their income on those basics of life that are particularly exposed to surges in inflation: food and fuel. These are part of what is called “noncore inflation,” a strange term that tries to separate out from the rest of the economy the part of inflation that is chronically affected by fluctuating prices. But if you’re poor, there’s nothing noncore about the cost of the food on your plate or the gasoline in your tank: They are central to your experience of living day to day. Noncore is as core as it gets.
{snip}