The index, therefore, does not reflect all sales and discounts offered in retail stores, or the effect of savings the housewife may make in "shopping around." Nor does it reflect all special charges, such as tips and "under-the-counter" premium payments, that are not reported to the Bureau's price agent.
One of the principal sources of potential error in the index is in the estimation of price change for items which are important in family spending, but not included in the list of items priced. Also, failure to observe price changes in localities in which price trends differ from those in which prices are collected, introduces errors of estimation in the measurement of the national trend. In the past, the Bureau omitted from its pricing list some items which were difficult to price satisfactorily, and limited its price collections to large cities only. However, within the limits of funds available for price collection work, efforts were made to check on price trends in noncovered areas and to keep error of estimation low.
The revision of the Consumer Price Index, completed in January 1953, was the most comprehensive undertaken since the mid-thirties, and was designed to reduce still further the effects of errors. In addition to developing a new "market basket" for the index, the Bureau introduced many important improvements in pricing and calculation methods. For example, changes in costs of shelter to homeowners, including repairs and maintenance of homes, are now priced directly where formerly they were measured by changes in rents; the Bureau now prices meals in restaurants instead of assuming that restaurant prices move like prices of foods purchased in stores. Changes in prices of used cars are measured directly where formerly they were imputed from price trends of new automobiles. Although the pricing procedures used for these items are still imperfect, they represent an improvement over past practices. Many items of food and other goods and services were added to the pricing list to improve the accuracy of the index measurement. Small cities have been added to the index coverage to make it more representative of price changes that are experienced by all urban wage-earner and clericalworker families, since price trends in large and small cities may differ under certain circumstances.
(2) Limitations in Use. The Consumer Price Index is specifically designed to measure the average change in prices of goods and services bought by urban wage-earner and clerical-worker families. Conse
quently, the index must be applied carefully when used for other purposes. The index represents all wage-earner and clerical-worker families, but not necessarily any one family or small groups of families. There arc limitations on the application of the index to very low or very high income groups, to elderly couples, to single workers, or to other groups whose level or manner of living and spending are different from the average of all worker families. To the extent that these groups spend their income differently and are therefore differently affected by price changes, the index is not exactly applicable. On the other hand, when the index is applied to all city families or to the total urban population, the limitations are not considered to be serious, since the wage-earner and clerical-worker family group represents such a large proportion (nearly two-thirds) of these populations.
The index is not to be used to measure the changes in total family spending, since it measures only the effect of price change and does not take into account other factors, such as higher or lower incomes or income taxes. The index does not reflect the experience of the individual housewife, as she "shops around" to take advantage of the lowest prices, nor does it show the full effect of paying premium prices for scarce items. The index also does not reflect the change in costs experienced by families who move from one city to another or who change from renting to owning their own home.
Comparisons of city indexes show how much prices have changed in one city compared with another since the base period 1947-49. They do not show whether prices are higher or lower in one city than in another.
Because the index, like the other economic series prepared by the Bureau, serves the needs of all sections of the public, an effort is made to provide as much information about it as possible, and to consult the users on ways of making the index better and more useful. Committees of advisors drawn from business and labor organizations and from professional associations advise on problems that arise; they were active in the comprehensive program of index revision completed January 1953. Other outside technical experts are also consulted on occasion.