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The Consumer Price Index: Concepts, Construction, and Controversy


The Consumer Price Index (CPI) is commonly referred to as "the rate of inflation" or as "the cost of living in the United States." The Consumer Price Index is not, however, nor was it ever intended to be, either a definitive or an ideal measure of cost-of-living changes in the United States. Indeed, as a practical matter, such an ideal measure is probably impossible to construct. By its broadest definition, the CPI is a price guide for goods and services purchased by families living in the urban centers of the United States. More specifically, it is a price index for a "fixed basket" of goods and services generally purchased by moderate-income urban families and single persons during 1972-73. To imply that the CPI is a measure of price changes for all goods or for all consumers exaggerates the value of the index as an inflation barometer.

The Consumer Price Index (CPI) is commonly referred to as "the rate of inflation" or as "the cost of living in the United States." The Consumer Price Index is not, however, nor was it ever intended to be, either a definitive or an ideal measure of cost-of-living changes in the United States. Indeed, as a practical matter, such an ideal measure is probably impossible to construct. By its broadest definition, the CPI is a price guide for goods and services purchased by families living in the urban centers of the United States. More specifically, it is a price index for a "fixed basket" of goods and services generally purchased by moderate-income urban families and single persons during 1972-73. To imply that the CPI is a measure of price changes for all goods or for all consumers exaggerates the value of the index as an inflation barometer.


Suggested citation: Bryan, Michael F., 1980. “The Consumer Price Index: Concepts, Construction, and Controversy,” Federal Reserve Bank of Cleveland, Economic Commentary, 07.28.1980.

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