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Measurement of Price Level Changes the Consumers Price Index

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MEASUREMENT OF PRICE LEVEL CHANGES: THE CONSUMERS PRICE INDEX U.S. Bureau of Labor Statistics The Consumer Price Index Background and Uses The Consumer Price Index prepared by the Bureau of Labor Statistics is a statistical measure of changes in prices of the goods and services bought by families of city wage earners and clerical workers. The index was initiated during World War I, when prices rose rapidly, for use in wage negotiations, particularly in shipbuilding centers. Coverage was gradually extended to include industrial cities throughout the country and estimates of nationwide changes in consumer prices were published at intervals beginning in October 1919. Regular publication was begun in February 1921. Weights used in these early indexes were based on surveys of family expenditures conducted during the period from 1917 to 1919. In the fall of 1935 the Bureau introduced improved methods of calculating the index, and in 1940 completed revision of the weights to correspond with 1934-36 family expenditure patterns as determined by another extensive study of family consumption. During World War II, when many items were scarce and goods were rationed, the weights were adjusted to reflect these conditions; in 1950 the Bureau again adjusted weights to reflect the effect of postwar changes in spending patterns. The most recent comprehensive revision of the index, begun in November 1949, was completed in January 1953, and weights representing 1951-52 spending patterns were introduced.

Since price change is one of the most important factors affecting the cost of living over short periods of time, the Bureau's index provides a satisfactory approximation of changes in the cost of living of urban wageearner and clerical-worker families. Widespread acceptance of this use is shown by the inclusion in labor-management agreements of automatic wage adjustment clauses.based on the Index, particularly after 1950. It has been estimated that, in early 1951, wages of several million employees were adjusted according to changes in the Consumer Price Index. In addition, the index is used as a measure of changes in the purchasing power of the consumer's dollar, and as a guide in the formulation of broad economic and social policy.

In 1951, a Special Subcommittee of the Committee on Education and Labor of the House of Representatives held extensive hearings concerning the Consumer Price Index. One of the Committee's reasons for undertaking the investigation was that "any governmental statistic of such paramount importance as the Consumer Price Index should be understood by the public so that it will receive proper confidence and respect." The Sub

committee heard more than 30 witnesses, including the Bureau officials responsible for the index and a large representative group of users from both labor and management. The Subcommittee also heard members of the Technical Advisory Committee of the American Statistical Association. Upon completion of its investigation, the Subcommittee reported its recommendations and comments, concluding that the Consumer Price Index was generally adequate for the purposes for which it was intended.

Index Measurement

The complete title of this index, popularly referred to as "The Consumer Price Index," is "Index of Change in Prices of Goods and Services Purchased by City Wage-Earner and Clerical-Worker Families." The index is concerned with price changes involving retail prices of foods, clothing, house-furnishings, fuel, and other goods; fees paid to doctors and dentists; prices in barbershops and other service establishments; rents; rates charged for transportation, electricity, gas, and other utilities; etc. Prices are those charged to consumers, including sales and excise taxes.

The different goods and services priced for the index are representative of the goods and services bought by city wage-earner and clericalworker families to use, replace, and add to their possessions, as determined in a comprehensive survey of family incomes and expenditures. These families are defined as units of 2 or more persons who live in the 3,000 towns, cities and suburbs of the United States, ranging in size from small cities of 2,500 population to the largest cities. The heads of these families are wage earners or salaried clerical workers, including craftsmen, factory workers, laborers, clerks, sales and service workers (except domestic service workers). Many of the families have two or more wage or salary workers; as a result, average family incomes are higher than average individual earnings. (Families with incomes after taxes of $10,000 or more are excluded.) The average size of the families included in the index was estimated to be about 3.3 persons, and their 1952 average family income after taxes was estimated at about $4,160. These families represent about 64 percent of all persons living in urban places and about 40 percent of the total United States population.

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