December 1997 Consumer Price Index

Historical release narrative reproduced from the official public-domain source. Statistical tables, standard technical appendices, administrative material and attendance rosters are omitted; formatting is adapted for reading. Figures retain the release's historical context and may have been revised. Consult the linked source for the complete document.

The Consumer Price Index for All Urban Consumers (CPI-U) declined

0.1 percent before seasonal adjustment in December to a level of 161.3

(1982-84=100), the Bureau of Labor Statistics of the U.S. Department

of Labor reported today. For the 12-month period ended in December,

the CPI-U has increased 1.7 percent.

The Consumer Price Index for Urban Wage Earners and Clerical

Workers (CPI-W) declined 0.2 percent in December, prior to seasonal

adjustment. The December 1997 CPI-W level of 158.2 was 1.5 percent

higher than the index in December 1996.

CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U rose 0.1 percent in

December, the same as in November. The food index decreased 0.1

percent in December. Grocery store food prices dropped 0.3 percent in

December, reflecting declines in the indexes for fruits and vegetables

and for meats, poultry, fish, and eggs. The energy index, which

declined 0.2 percent in November, fell 1.6 percent in December. The

index for petroleum-based energy declined 0.9 percent, and the index

for energy services dropped 2.4 percent. Excluding food and energy,

the CPI-U rose 0.2 percent after advancing 0.1 percent in November.

Larger increases in the costs for shelter, for medical care, and for tobacco, coupled with an upturn in the index for entertainment and a smaller decline in airline fares, accounted for the larger advance in

December.

Seasonally adjusted Un-

Compound Adjusted

Expenditure Changes from preceding month annual rate 12-mos.

Category 1997 3-mos. ended ended

June July Aug. Sept.Oct. Nov. Dec. Dec.'97 Dec.'97

Other goods

Special Indexes:

All items less

Beginning with release of the CPI for January 1998 on February

24, 1998, the BLS will introduce a new geographic area sample, a revised item structure, and updated expenditure weights into the CPI.

See page 5 for further details.

For the 12-month period ended in December 1997, the CPI-U rose

1.7 percent. This compares with an advance of 3.3 percent in 1996 and was the smallest annual increase since a 1.1 percent rise in 1986.

The food and energy components, which had accelerated in 1996 after

acting as moderating influences throughout most of the preceding five

years, were largely responsible for the deceleration in 1997. The

food index rose 1.5 percent in 1997, following a 4.3 percent increase in 1996. Grocery store food prices rose 1.0 percent after advancing

4.9 percent in 1996. All major grocery store groups showed marked

deceleration in 1997, relative to 1996, except for the other food at home group, which rose 2.9 percent after increasing 2.2 percent in

1996. The larger advance in this group was due to the sharp acceleration in coffee prices, which increased 16.9 percent in 1997

after declining 6.7 percent in the previous year. The energy index,

which increased 8.6 percent in 1996, declined 3.4 percent in 1997.

Petroleum-based energy costs fell 6.9 percent, following a 13.8

percent increase in 1996, while charges for energy services increased

0.2 percent after rising 3.8 percent in 1996.

The CPI-U excluding food and energy advanced 2.2 percent in 1997,

following an increase of 2.6 percent in 1996. The 1997 advance

represents the smallest annual increase in this index since a 1.5

percent rise in 1965. The deceleration in 1997, while widespread, was

particularly notable within the transportation (other than for motor

fuel) component, specifically, for airline fares and for new vehicles.

The rates for selected groups during the past nine years are shown below.

Percent change 12 months

ended in December

Food and

Apparel and

Transport. 4.0 10.4 -1.5 3.0 2.4 3.8 1.5 4.4 -1.4

Other goods

Special

Indexes

All items

less food

The food and beverage index was unchanged in December. The index

for grocery store food prices, which increased 0.1 percent in

November, fell 0.3 percent in December. Declines of 1.0 and 0.7

percent, respectively, in the indexes for fruits and vegetables and

for meats, poultry, fish, and eggs were responsible for the downturn.

Within the latter category, prices for beef, pork, and poultry prices

each declined in December and over the past 12 months have fallen 0.7,

1.5, and 1.6 percent, respectively. Recent increases in the index for

dairy products--up 0.5 percent in December and 3.0 percent in the

fourth quarter--have not offset declines earlier this year, resulting

in a 0.5 percent drop in the 12 months ended in December. The indexes for cereal and bakery products and for other food at home rose 0.2 and

0.1 percent, respectively, in December. During the 12-month period

ended in December, these categories have risen 1.5 and 2.9 percent,

respectively. The other two components of the food and beverage index-

-restaurant meals and alcoholic beverages--each rose 0.4 percent in

December. During the last 12 months, these groups rose 2.6 and 2.2

percent, respectively.

The housing component rose 0.1 percent in December, following

increases of 0.3 percent in each of the three preceding months. A

sharp downturn in the index for fuel and other utilities--down 1.1

percent in December after increasing 0.9 percent in November--

accounted for the deceleration. In December, the index for household

fuels fell 2.3 percent, reflecting decreases of 2.7 percent in the

index for natural gas and 2.2 percent in the index for electricity;

the index for fuel oil rose 0.1 percent. During the 12 months ended in December, charges for natural gas rose 3.3 percent, while the indexes for electricity and fuel oil declined 1.3 and 11.7 percent, respectively. The index for other utilities and public services rose

0.1 percent in December. The index for telephone services declined

slightly in December, but has risen 0.2 percent since December 1996.

Shelter costs rose 0.4 percent in December. Within shelter, renters'

costs rose 0.7 percent; homeowners' costs, 0.3 percent; and

maintenance and repair costs, 0.5 percent. The increase in renters'

costs reflects a 1.8 percent rise in the index for lodging while out of town; residential rents rose 0.3 percent. Shelter costs advanced

3.4 percent in the 12 months ended in December 1997, following a 2.9

percent rise in 1996. The index for household furnishings and

operation was unchanged in December and was 0.1 percent higher than

its level in December 1996.

The transportation index, which declined 0.7 percent in November,

fell 0.2 percent in December. The indexes for motor fuels and new vehicles declined for the third consecutive month and public transportation costs decreased for the second month in a row. The index for gasoline, which fell 2.3 percent in November, declined 1.0

percent in December. New vehicle purchase costs declined again in

December; the index for new vehicle prices decreased 0.2 percent and

automobile finance charges dropped 0.5 percent. (Prior to seasonal

adjustment, new vehicle prices increased 0.1 percent. As of December,

about 60 percent of the new vehicle sample was represented by 1998

models. The 1998 models will continue to be phased in over the next several months as they replace old models at dealerships.) The index for used cars increased 0.3 percent. Public transportation costs declined 0.9 percent in December. The index for airline fares, which declined 3.9 percent in November, dropped 1.4 percent in December.

During the 12 months ended in December, prices for gasoline, new

vehicles, used cars, airline fares, and automobile finance charges

each declined, with the decreases ranging from 0.9 percent for new

vehicles to 6.1 percent for gasoline.

The index for apparel and upkeep increased for the fourth

consecutive month--up 0.1 percent in December--to a level 1.0 percent

higher than in December 1996. (Prior to seasonal adjustment, apparel

commodity prices fell 2.6 percent in December, reflecting pre-holiday

discounting.)

The medical care index rose 0.5 percent in December. Each year

(December-to-December) these costs have decelerated since registering

represents the smallest annual increase since a 2.8 percent rise in

1965. In December, the index for medical care commodities--

prescription drugs, nonprescription drugs, and medical supplies--rose

0.6 percent. The index for medical care services rose 0.5 percent.

Charges for professional services and for hospital and related

services increased 0.4 and 0.6 percent, respectively, in December and

3.1 and 3.2 percent, respectively, in 1997.

Entertainment costs rose 0.3 percent in December to a level 1.4

percent above a year ago. In 1997, charges for entertainment services

increased 2.5 percent, while prices for entertainment commodities--

reading materials, sporting goods, and toys and hobbies--decreased 0.1

percent.

The index for other goods and services rose 0.4 percent in

December, following an increase of 0.3 percent in November. A larger

increase in the index for tobacco and smoking products-up 0.7 percent

after increasing 0.1 percent in November-accounted for the larger

December rise. During the last 12 months this index rose 5.2 percent, reflecting increases of 7.2 percent for tobacco and smoking products and 5.2 percent for tuition and other school fees.

CPI for Urban Wage Earners and Clerical Workers (CPI-W)

On a seasonally adjusted basis, the CPI for Urban Wage Earners

and Clerical Workers rose 0.1 percent in December.

Workers (CPI-W)

Seasonally adjusted Un-

Compound adjust

Expenditure Changes from preceding month annual 12-

rate mos.

Category 1997 3-mos. ended

ended

June Jul. Aug. Sep. Oct. Nov. Dec. Dec. `97 Dec. `97

Food and

Apparel and

Other goods

Special Indexes:

All items less

After seasonal adjustment, the level of the CPI-U for All Items was

161.9 in December; the seasonally adjusted CPI-W for All Items was

Beginning with January 1997 data, BLS is reporting the level of

the seasonally adjusted U.S. City Average All Items CPI-U and CPI-W in this monthly news release. Effective with the release of January 1998

data in February 1998, the seasonally adjusted All Items indexes will

be fully integrated into the releases, appearing in tables 2 and 5 and in the text where relevant. Like other seasonally adjusted CPI data, the All Items index levels are subject to revision for up to five years after their original release. For this reason, BLS advises against the use of these data in escalation agreements.

Consumer Price Index data for January are scheduled for release

on Tuesday, February 24, 1998, at 8:30 A.M. (EST).

Planned CPI Publication Changes

Beginning in 1998, the Bureau of Labor Statistics (BLS)

will introduce a new geographic area sample, a revised

item structure and updated expenditure weights into the

Consumer Price Index (CPI). Approximately every ten

years the CPI undertakes this type of revision in order

to keep the index up-to-date. Since World War II,

revisions of the CPI have been introduced in 1953, 1964,

1978, and 1987.

Because the changes the CPI undergoes during each

revision can have a major impact on our users, special

steps are taken in order to ameliorate the effects of

these changes. Beginning with the release of the

January, 1997 index, data series that are changing or

being dropped from publication have been footnoted in

all BLS published tables. This provided an early

warning to users to reconsider their use of those

indexes and provided time for them to make changes in

their use. The 1998 CPI Revision contains substantial

changes in both the items being presented and the

frequency of local area index publication.

Changes to the Item Structure

Effective in 1998, there will be considerable changes to

both the items being priced and the manner in which they

are being aggregated in the CPI. The most notable

change in presentation is a reconstruction of several

major groups with a resulting change from the currently

available seven major groups to the new total of eight.

Currently the major groups are: Food and Beverages,

Housing, Apparel and Upkeep, Transportation, Medical

Care, Entertainment and Other Goods and Services. Three

of these groups-- Food and Beverages, Transportation,

and Medical care will remain the same. The Apparel

group was modified to exclude apparel upkeep products

and services. The Entertainment group has been slightly

redefined into a major group called Recreation and a new

major group, Education and Communication, has been

formed from past subelements of the Housing,

Entertainment and Other Goods and Services groups

Other important changes in our item structure at lower

levels are an expansion of our Food Away from Home

index, a reorientation of our car and truck indexes to a

vehicle index, and the expansion of our information

processing equipment index.

For a complete listing of the new CPI Publication

Structure see Table X.

Changes to the Geographic Structure

In each revision, the CPI geographic sample is selected

to be representative of the current demographics of the

United States. The 1998 revision utilizes the 1990

Census of population. The CPI develops an updated area

sample design, decides on new local area indexes and

changes the frequency of publication for local area

indexes in order to better reflect these new

demographics.

In addition to the national index, the BLS currently

publishes indexes for 29 metropolitan areas. In 1998,

it will continue to publish indexes for all but two of

these areas--Buffalo-Niagara Falls, NY, and New Orleans,

LA. Due to the revised Metropolitan Area (MA)

definitions issued by the Office of Management and

Budget(OMB), two other areas, Washington, DC, and

Baltimore, MD, which the BLS currently publishes

separately, constitute a new Consolidated Metropolitan

Statistical Area. A single index will be published for

this consolidated area.

The new publication plan for local area indexes, to

begin with the index for January 1998, is summarized

below:

* Monthly indexes will be published for the three

largest metropolitan areas. Because of sample design

considerations, indexes for the Philadelphia and San

Francisco areas, both currently published monthly, will

be published every other month following the release of

the December, 1997 index.

* Bimonthly indexes will be published for the next

11 largest areas, including Atlanta and Seattle, which

currently have semiannual average indexes.

* Semiannual average indexes will be published for

12 additional areas, including Pittsburgh and St. Louis,

which currently have bimonthly indexes.

* The BLS will continue to publish separate

indexes for the four Census regions of the United

States. However, beginning in 1998, there will only be

two area size classes for metropolitan areas, instead of

the current three: Size A - areas with a population

greater than 1.5 million; and Size B/C - areas with less

than 1.5 million population. This cutoff of 1.5 million

in population reflects a rise from the current cutoff of

1.2 million and is important since cities in size class

A are those for which the Bureau publishes city level

indexes. The B/C size class is a combination of the old

Size B and Size C metropolitan areas. In addition to

the two metropolitan area size indexes for each region,

separate Size D indexes for urban non-metropolitan areas

will continue to be published for both the Midwest and

the South. Separate indexes for Northeast and West

urban nonmetropolitan areas were discontinued in 1987.

The following is the full list of areas for which

indexes will be published, beginning in January, 1998:

1. Metropolitan Areas for which a local index will be published monthly:

New York-Northern New Jersey-Long Island, NY-NJ-CT-PA

Chicago-Gary-Kenosha, IL-IN-WI

Los Angeles-Riverside-Orange County, CA

2. Metropolitan Areas for which a local index will be published bimonthly:

In Odd Months (i.e. January, In Even Months (i.e.

March, etc.) February, April, etc.)

Boston-Brockton-Nashua, MA-NH- Philadelphia-Wilmington-

ME-CT Atlantic City, PA-NJ-DE-MD

Washington-Baltimore, DC-MD- San Francisco-Oakland-San

VA-WV Jose, CA

Cleveland-Akron, OH Houston-Galveston-Brazoria,

Atlanta, GA Detroit-Ann Arbor-Flint, MI

Dallas-Fort Worth, TX Miami-Fort Lauderdale, FL

Seattle-Tacoma-Bremerton, WA

3. Metropolitan Areas for which a local index will be published

semiannually (In January and July)

Pittsburgh, PA Cincinnati-Hamilton, OH-KY-IN

Kansas City, MO-KS Milwaukee-Racine, WI

Minneapolis-St. Paul, MN-WI St. Louis, MO-IL

Tampa-St. Petersburg-Clearwater, FL Anchorage, AK

Denver-Boulder-Greeley, CO Honolulu, HI

Portland-Salem, OR-WA San Diego, CA

BLS to Maintain Current Reference Base of 1982-84=100

for most CPI index series

The Bureau of Labor Statistics (BLS) previously

indicated its intention to change the numerical

reference base for both the Consumer Price Index for All

Urban Consumers (CPI-U) and the Consumer Price Index for

Urban Wage Earners and Clerical Workers (CPI-W) from

effective with release of the January 1999 index in

February 1999. BLS also indicated that the alternate,

or 1967=100 base, would be discontinued in 1999 as well.

This plan was initially described in the December 1996

Monthly Labor Review, a publication which contained

several articles that dealt with the 1998 CPI Revision.

The BLS has now decided not to implement this rebasing

plan. Instead, the BLS will maintain the reference base

of 1982-84=100 used for most items. In addition, the

1967=100 reference base will continue to be the

alternate base for the All Items indexes. This decision

is based in part on the fact that historical data have

less precision after rebasing. Rebasing is simply an

arithmetic transformation that does not substantively

impact the index. Because the rebased index values are

smaller, however, the loss of precision due to rounding

is more serious. In addition, retaining the old index

reference bases would spare users the inconvenience

associated with conversion.

Changes in the numerical reference base should not be

confused with the plans by BLS to update the market

basket of the CPI. With release of the January CPI in

February 1998, the expenditure weights applied to CPI

categories will be based on consumer spending patterns

for 1993-95.

If you have any questions about our plans to maintain

the current CPI reference base of 1982-84=100, please

contact Patrick Jackman at area code 202-606-6952.

Using a hedonic model to adjust prices of personal

computers in the Consumer Price Index for changes in

quality

Effective with the release of data for January 1998,

the Bureau of Labor Statistics (BLS) will introduce an

improved quality adjustment technique in the new stratum

of the Consumer Price Index (CPI) called Personal

Computers and Peripheral Equipment.

Currently, personal computers are part of the

Information Processing Equipment stratum. As previously

announced, beginning with the CPI for January 1998,

Information Processing Equipment

will become an expenditure class entitled Information

and Information Processing Other Than Telephone

Services. Personal Computers and Peripheral Equipment

will be one of four strata in that expenditure class.

Analysts in the Producer Price Index (PPI) program

have developed and implemented a regression procedure,

called a hedonic model, that decomposes the price of

personal computers into implicit prices for each

important feature and component of the computer. This

model, which has been used in the PPI since 1991,

provides a way to estimate the value of changes or

improvements. The CPI has used similar hedonic methods

to adjust apparel prices for many years.

Starting with the CPI for January 1998, when a

personal computer or selected item of peripheral

equipment, such as a modem, in the CPI sample improves

in some way, a regression-based quality adjustment will

be made. The value of the improvement, as derived from

the PPI regression estimates, will be deducted from the

observed price change for the product. (Conversely, if

a model deteriorates, the value of the difference will

be added to the price.)

Additional information on these changes will be

published in the June 1997 CPI Detailed Report and is

available on the Internet (at

http://stats.bls.gov/cpihome.htm). This information can

also be obtained by writing to Bureau of Labor

Statistics, Division of Consumer Prices and Price

Indexes, Room 3260, 2 Massachusetts Ave. NE, Washington, DC 20212

or by telephoning Joseph Chelena at (202) 606-6982 ext.

Calculated Seasonally Adjusted Indexes to be Available

on February 20, 1998

Each year with the release of the January CPI, seasonal

adjustment factors are recalculated to reflect price

movements from the just-completed calendar year. This

routine annual recalculation may result in revisions to

seasonally adjusted indexes for the previous 5 years.

BLS will make available recalculated seasonally adjusted

indexes, as well as recalculated seasonal adjustment

factors, for the period January 1993 through December

1997, on Friday, February 20, 1998. This date is two

working days before the scheduled release of the January

1998 CPI on Tuesday, February 24, 1998.

The revised indexes and seasonal factors will be

available on the internet using the BLS FTP server. The

address is ftp://146.142.4.23. Select pub, then select

special requests, then select cpi. The revised seasonal

data will be in the file revseas.cpi.

or Richard Kerr on (202) 606-6968.