The Bureau of Labor Statistics calls grocery stores to find out the prices of everyday items.
The Consumer Price Index is a measure of the average change over time in the prices paid by urban consumers for a market basket of goods and services, according to the Bureau of Labor Statistics, which issues the report. The CPI is used as a measure of inflation, an economic indicator and to calculate cost-of-living adjustments, or COLA, for Social Security payments.
Coverage of Population
The CPI measurement spending patterns of two groups two population groups: all urban consumers and urban wage earners and clerical workers. These two groups make up approximately 87 percent of the entire population. People represented in these two groups include professionals, the self-employed, the poor, the unemployed and retired people, as well as urban wage earners and clerical workers. The CPI covers the expenditures of the vast majority of all Americans, making it reliable to the country overall.
Sources of Data
The information gathered for the CPI reports comes from over 23,000 retail and service establishments giving detailed information on the price of their goods and services over a period of time. Over 50,000 landlords and tenants are surveyed to obtain information on rent expenses. In 2007 and 2008, the BLS interviewed 7,000 families that kept track of their daily expenditures over a two-week period. This information, along with 28,000 diaries and 60,000 quarterly interviews, were used to create more than 200 categories weighted by importance to the average family. The advantage of taking large sample sizes allows the report to have a smaller percentage error within the report.
Frequency
The national CPI report is released on a monthly basis, providing information on the prior month's change in prices. For example, in the July report, the CPI will reflect the changes for the month of June. This timely information is a key economic indicator of inflation pressures the average family might be experiencing. CPI reports are also provided monthly for 11 metropolitan cities across the country. Another 13 cities receive biannual CPI reports. Combining the national and metropolitan city reports can provide information on price changes within different regions of the country.
Categories
The CPI also breaks down price changes within different categories. The CPI lists eight different pricing categories, including food and beverages, housing, apparel, transportation, medical care, recreation, education and communication and other goods and services. By breaking down the prices in these areas, it becomes clear if one particular area if suffering from inflationary increases compared to other areas. For example, the price of medical care may increase faster than the cost apparel goods.
Seasonally Adjusted
The CPI is provided with unadjusted and seasonally adjusted measures. Seasonally adjusted measures make it easier to compare month-to-month price changes than unadjusted reports. This is because consumers spend more money at certain times of a year than others. An example is trying to compare December-to-January prices. December holidays usually lead to higher spending amounts on items than in January. Comparing the prices from these two months is difficult without adjusting for seasonal factors.
