Institute for Economic and Racial Equity

Modernizing the Consumer Price Index and Tracking Inflation

The Bureau of Labor Statistics (BLS) should undertake a new strategy to modernize the Consumer Price Index by accelerating its use of new data sources and developing price indexes based on different income levels, according to an expert panel consensus report from the National Academies of Sciences, Engineering, and Medicine (NASEM). Among the NASEM panel members was Lisa Lynch, the Maurice B. Hexter Professor of Social and Economic Policy and director of the Institute for Economic and Racial Equity.

The Consumer Price Index is the most widely used measure of inflation in the U.S. and is relied on to determine cost-of-living allowances and monetary policy. The NASEM report discusses how the index has traditionally relied on field-generated data, such as prices observed in person at grocery stores or major retailers, but these data have become more challenging and increasingly expensive to collect.

The report examined the need and feasibility for BLS to produce price indexes for population subgroups that may face different inflation rates based on the types of goods they consume ― such as expenditures on health care for the elderly versus the young ― and where they are able to shop if, for example, a household has limited transportation options. Such subgroup price indexes would be very useful for adjusting Social Security benefits, calibrating transfer payments of various safety net programs, and advancing research on income and wealth inequality, social welfare, and poverty.

The expert panel concluded that modernizing the Consumer Price Index would help the measurement of household costs and inflation to be more accurate, timelier, and useful for policymakers responding to rapidly changing economic conditions.

Highlights of the report can be found here.