Measuring Inflation

May 16, 1980

Report Outline
Price Index under Attack
Development of Price Indexes
New Proposals and Debate
Special Focus

Price Index under Attack

Charge That CPI Itself Adds to Inflation

More than a decade of inflation has made the Consumer Price Index the best known and one of the most widely watched of all economic yardsticks. The CPI, said Fortune magazine, is “possibly the single most important statistic” the government produces. But a number of economists, government officials and business leaders contend that it is deficient in several ways. For one thing, states the New York Citibank's Monthly Economic Letter, the index exaggerates the inflation rate by the way it calculates fuel and housing costs. Even worse, Chairman Alfred Kahn of the Council on Wage and Price Stability told a congressional Task Force on Inflation in January, the CPI has become “part of its own problem.”

The problem, in Kahn's view, is that when the index advances, it automatically triggers cost-of-living increases for millions of wage earners and even greater numbers of people who receive benefits from Social Security and other federal and state programs. In 1974, the Bureau of Labor Statistics estimated that every percentage point rise in the index added $1 billion in federal payments to individuals. Five years later the General Accounting Office, Congress' auditing arm, calculated that the same increase could trigger more than $2 billion in federal spending. An official at the White House Office of Management and Budget estimates that currently one-third of all federal expenditures go to programs that are indexed to the Consumer Price Index.

Today cost-of-living adjustments apply directly to 65 million Americans, nearly a third of the nation's population. When dependents are added to this group, it forms nearly half of the country's 223 million people. The Labor Department reports that nine million American men and women in offices, stores and factories receive cost-of-living bonuses. Among workers covered by large union contracts, six of every ten get these bonuses.

ISSUE TRACKER for Related Reports
U.S. Dollar and Inflation
Oct. 2008  The Troubled Dollar
Feb. 13, 1998  Deflation Fears
Mar. 13, 1987  Dollar Diplomacy
Oct. 14, 1983  Strong Dollar's Return
Jul. 11, 1980  Coping with Inflation
May 16, 1980  Measuring Inflation
Dec. 07, 1979  Federal Reserve's Inflation Fight
Jun. 09, 1978  Dollar Problems Abroad
Sep. 20, 1974  Inflation and Job Security
Feb. 26, 1969  Money Supply in Inflation
Feb. 14, 1968  Gold Policies and Production
Dec. 15, 1965  Anti-Inflation Policies in America and Britain
Mar. 15, 1965  World Monetary Reform
Dec. 02, 1964  Silver and the Coin Shortage
Oct. 17, 1962  Gold Stock and the Balance of Payments
Dec. 15, 1960  Gold and the Dollar
Oct. 10, 1956  Old-Age Annuities in Time of Inflation
Jan. 17, 1951  Credit Control in Inflation
Aug. 10, 1949  Dollar Shortage
Oct. 04, 1943  Stabilization of Exchanges
Jan. 21, 1941  Safeguards Against Monetary Inflation
Mar. 25, 1940  United States Gold in International Relations
Dec. 14, 1937  Four Years of the Silver Program
Oct. 04, 1934  Inflation in Europe and the United States
Jan. 30, 1934  Dollar Depreciation and Devaluation
Sep. 05, 1933  Stabilization of the Dollar
May 29, 1933  Invalidation of the Gold Clause
Mar. 15, 1933  Inflation of the Currency
Oct. 25, 1924  Bank Rate and Credit Control Federal Reserve Policies and the Defaltion Issue
BROWSE RELATED TOPICS:
Economic Analyses, Forecasts, and Statistics
Inflation