Consumer Price Index Data Quality: How Accurate is the U.S. CPI?

Abstract

The Consumer Price Index (CPI) is an estimate of the average change in prices over time paid by urban consumers for a market basket of consumer goods and n the United States. The CPI is used extensively in many different ways, including three major uses: to adjust historical data, to escalate federal payments and tax brackets, and to adjust rents and wages. It directly affects the lives of Americans, so it must be as accurate as possible. But how accurate is it? If, for example, the CPI measures annual inflation as 2.3 percent, how confident can we be in that estimate? This issue of BEYOND THE NUMBERS looks at some different ways the U.S. Bureau of Labor Statistics (BLS) has responded to questions about the accuracy and precision of the CPI. The first section examines the sampling error of the CPI, and the second section discusses possible sources of bias in the index.