July 1998 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) rose 0.1 percent in July, before seasonal adjustment, to a level of 163.2 (1982- 84=100), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. For the 12-month period ended in July, the CPI-U has increased 1.7 percent.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) also rose 0.1 percent in July, prior to seasonal adjustment. The July 1998 CPI-W level of 159.8 was 1.5 percent higher than the index in July 1997.

CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U rose 0.2 percent in July, following a 0.1 percent increase in June. Indexes for food, energy, and all items less food and energy each contributed to the slightly larger advance. The food index, which rose 0.1 percent in June, increased 0.2 percent in July. Prices for food at home advanced 0.3 percent in July after increasing 0.1 percent in June, reflecting upturns in the indexes for meats, poultry, fish, and eggs and for fruits and vegetables. The energy index, which declined 0.7 percent in June, was unchanged in July. The index for petroleum-based energy decreased 0.1 percent, while the index for energy services was unchanged. Excluding food and energy, the CPI-U increased 0.2 percent in July, following a 0.1 percent rise in June. The indexes for new cars, cigarettes, and airline fares each turned up in July after declining in June.

Jan. Feb. Mar. Apr. May June July July `98 July `98

Beginning with release of data for January 1999, the BLS will introduce a new formula for calculating the basic components of the CPI. See page 4 for more details. See pages 5 and 6 for announcements on methodological changes concerning utility rebates and hedonic quality adjustment for televisions.

During the first seven months of 1998, the CPI-U rose at a 1.5- percent seasonally adjusted annual rate (SAAR). This compares with an increase of 1.7 percent for all of 1997. Declines in energy costs have continued to act as a moderating influence on overall consumer price index movements thus far in 1998, decreasing at a 10.4-percent annual rate after declining 3.4 percent in all of 1997. Food costs, which rose 1.5 percent in 1997, have risen at a 2.3-percent SAAR in the first seven months of 1998. Excluding food and energy, the CPI-U has advanced at a 2.4-percent rate thus far in 1998, compared with a 2.2 percent rise for all of 1997.

The food and beverages index rose 0.2 percent in July. The index for food at home, which rose 0.1 percent in June, increased 0.3 percent in July, reflecting upturns in the indexes for meats, poultry, fish, and eggs and for fruits and vegetables. The latter group rose 0.3 percent in July, following a 1.0 percent decline in June. The index for fresh vegetables, which declined 5.5 percent in June, rose 1.3 percent in July, more than offsetting a 0.8 percent decrease in the index for fresh fruits. (Prior to seasonal adjustment, prices for fresh vegetables fell 0.3 percent.) The index for processed fruits and vegetables increased 0.7 percent. The index for meats, poultry, fish, and eggs rose 0.5 percent in July, its largest advance in 14 months. The index for fish and seafood rose 1.5 percent; poultry prices increased 0.7 percent. The indexes for beef and pork advanced 0.1 percent and 0.3 percent, respectively. The index for other food at home increased 0.3 percent as a sharp increase in prices for butter and margarine was partially offset by a decline in prices for sugar and sweets. Among the other three major food at home groups, the index for nonalcoholic beverages was unchanged, while the indexes for cereal and bakery products and for dairy products each increased 0.1 percent. The other two components of the food and beverage index--food away from home and alcoholic beverages--rose 0.2 percent and 0.3 percent, respectively.

The housing component rose 0.2 percent in July. Shelter costs rose 0.2 percent, the same as in June. Within shelter, the index for rent rose 0.2 percent, owners' equivalent rent increased 0.3 percent, and the cost of lodging away from home declined 0.7 percent. (Prior to seasonal adjustment, the latter index increased 1.9 percent.) The index for fuels and utilities was unchanged in July. The indexes for natural gas and for fuel oil declined 0.1 and 0.6 percent, respectively, offsetting a 0.1 percent rise in the index for electricity. The index for household furnishings and operations increased 0.3 percent in July.

The transportation component increased 0.3 percent in July, following a 0.3 percent decline in June. Upturns in the indexes for new vehicles and airline fares, coupled with a smaller decline in the index for gasoline, accounted for the July advance. The index for gasoline, which declined 0.9 percent in June, decreased 0.2 percent in July. (Prior to seasonal adjustment, gasoline prices fell 1.2 percent in July.) The index for new and used vehicle prices rose 0.4 percent. The index for new vehicles, which declined 0.3 percent in June, increased 0.5 percent in July. (Prior to seasonal adjustment, new vehicle prices rose 0.1 percent.) The index for used cars and trucks advanced 0.3 percent. Public transportation costs increased 1.0 percent in July. The index for airline fares, which declined 2.0 percent in June, increased 3.2 percent in July.

The index for apparel declined 0.3 percent in July. (Prior to seasonal adjustment, apparel prices fell 2.2 percent, reflecting seasonal price declines.)

Medical care costs rose 0.2 percent in July to a level 3.4 percent above a year ago. The index for medical care commodities--prescription drugs, nonprescription drugs, and medical supplies--was virtually unchanged. The index for medical care services rose 0.2 percent. Charges for professional services and for hospital and related services increased 0.1 and 0.6 percent, respectively.

The index for recreation costs was unchanged in July. Increases in prices for reading materials and sporting goods were offset by declines in most other recreation groups, particularly for admissions to movies, theaters, and concerts.

The index for education and communication was unchanged in July. An increase in education costs was offset by a decline in the index for communication. Within the latter group, the index for personal computers and peripheral equipment and for cellular telephone services declined 6.0 and 0.2 percent, respectively.

The index for other goods and services, which was virtually unchanged in June, rose 0.7 percent in July. The acceleration largely was attributable to an upturn in the index for tobacco and smoking products, which increased 2.6 percent in July after declining 0.6 percent in June.

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

On a seasonally adjusted basis, the CPI for Urban Wage Earners and Clerical Workers increased 0.2 percent in July.

Consumer Price Index data for August are scheduled for release on Thursday, September 17, 1998, at 8:30 A.M. (EDT).

Planned change in the Consumer Price Index Formula

On April 16, the Bureau of Labor Statistics announced its decision to use a new formula for calculating the basic components of the Consumer Price Index for all Urban Consumers (CPI-U) and the Consumer Price In3dex for Urban Wage Earners and Clerical Workers (CPI-W). This change will become effective with data for January 1999. The new formula, the geometric mean estimator, will be used in index categories that comprise approximately 61 percent of total consumer spending represented by the CPI-U. The remaining index categories, which are shown in the table below, will continue to be calculated as they are currently. Based upon BLS research, it is expected that planned use of the new formula will reduce the annual rate of increase in the CPI by approximately 0.2 percentage point per year. The geometric mean estimator will be introduced in both the CPI-U and the CPI-W effective with data for January 1999, in accord with the past practice of introducing methodological changes at the beginning of a calendar year. BLS will continue to publish "overlap" CPI-U and CPI-W series using the current calculation method for the first six months of 1999. These indexes will not be published regularly for months subsequent to June 1999, but will be available upon request. Additional information on this change will be published in the April 1998 CPI Detailed Report and is available on the Internet (http://stats.bls.gov/cpihome.htm). This information may also be obtained by writing to the Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes, 2 Massachusetts Ave. N.E., Room 3615 Washington, D.C. 20212-0001 or by calling (202) 606-7000.

Improvements to CPI Procedures for Handling Refunds for Utilities

Effective with the calculation of the index for January 1999, the Consumer Price Index (CPI) will change its treatment of refunds for electricity, natural gas, or other utility services when the refunds are based on earlier periods' utility consumption amounts. The change will affect both the price indexes and the average prices computed by the CPI program.

Under the current practice, the CPI utility indexes reflect refunds that appear on current period bills but that are based on past period utility consumption. Generally these refunds result from the rollback of temporary rate increases, lower than anticipated energy costs, or a reevaluation of rates with respect to actual costs. The current practice makes these indexes rather volatile and do not reflect the actual current price (for example, what a new customer would pay) for a utility service such as electricity.

Under the new procedure, the CPI will disregard any refund for past excess charges when it appears on residential customer bills as a separate refund credit that is subtracted from the charges for current billing period's usage. The movement of the CPI utility indexes will reflect all changes in rates-generally in the month they are effective. The CPI utility indexes will continue to reflect current period credits that are based on current period consumption, such as those associated with purchased gas or fuel adjustments.

For additional information on this change, write to the Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes, 2 Massachusetts Ave. NE, Room 3615, Washington, DC 20212-0001; or telephone Bob Adkins at (202) 606-6985 ext. 264, or send e-mail to Adkins_B@bls.gov

Using a hedonic model to adjust television prices in the Consumer Price Index for changes in quality

Effective with the release of the Consumer Price Index (CPI) for January 1999, the Bureau of Labor Statistics (BLS) will introduce an improvement in the way in which it calculates the Television stratum of the CPI. As of December 1997, Televisions constituted 0.215 percent in the Consumer Price Index for all Urban Consumers (the CPI-U) and 0.256 percent in the Consumer Price Index for Urban Wage Earners and Clerical Workers (the CPI-W). Bureau of Labor Statistics researchers developed a regression procedure, called a hedonic model, that decomposes the price of television sets into implicit prices for each important feature and component /1. This model uses Television observations collected for the CPI and provides an estimate of the value of each of the significant features and components of the sets for which prices are collected. This yields a mechanism for replacing obsolete televisions in the CPI sample with current ones, allowing the CPI to capture the price change that may occur as new models replace old ones in the market place without counting the value of quality improvements as price increases. The CPI has used similar hedonic methods to adjust apparel prices for many years. In January 1998, the CPI began using a similar approach for Personal Computers. In the coming years, BLS plans to extend the method to additional CPI items. Starting with the CPI for January 1999, when a television model in the CPI sample improves in some way, the value of that change, as derived from the regression estimates, will be deducted from the observed price change for that product. (Conversely, if a model deteriorates, the value of the difference will be added to the price.) For additional information on these changes, write to Bureau of Labor Statistics Division of Consumer Prices and Price Indexes 2 Massachusetts Ave. NE, Room 3260 Washington, DC 20212-0001 or telephone Tim LaFleur at (202) 606-6982 ext. 253, or send e-mail to LaFleur_T@bls.gov

/1 Brent R. Moulton, Timothy J. LaFleur, and Karin E. Moses, "Research on Improved Quality Adjustment in the CPI: The Case of Televisions," presented to the Conference of the Ottawa Group, April 1998.

Overview of Publication Changes

Beginning in 1998, the Bureau of Labor Statistics (BLS) introduced 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 were taken in order to ameliorate the effects of these changes. Beginning with the release of the January 1997 index, data series that were to be changed or dropped from publication have been footnoted in all BLS published tables. This provided an early warning for 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 are 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 formerly available seven major groups to the new total of eight.

Formerly the major groups were: 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 remained 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 developed an updated area sample design, decided on new local area indexes and changed the frequency of publication for local area indexes in order to better reflect these new demographics.

In addition to the national index, the BLS formerly published indexes for 29 metropolitan areas. In 1998, it continues 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 formerly published separately, constitute a new Consolidated Metropolitan Statistical Area. A single index is now published for this consolidated area.

The new publication plan for local area indexes, that began with the index for January 1998, is summarized below:

* Monthly indexes are now published for the three largest metropolitan areas. Because of sample design considerations, indexes for the Philadelphia and San Francisco areas, both formerly published monthly, are now published every other month following the release of the December, 1997 index.

* Bimonthly indexes are published for the next 11 largest areas, including Atlanta and Seattle, which used to have semiannual average indexes.

* Semiannual average indexes are now published for 12 additional areas, including Pittsburgh and St. Louis, which formerly had bimonthly indexes.

* The BLS continues to publish separate indexes for the four Census regions of the United States. However, beginning in 1998, there are only two area size classes for metropolitan areas, instead of the former 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 former 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 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 are currently published, beginning in January, 1998:

1. Metropolitan Areas for which a local index is 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 is 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 Atlanta, GA

Dallas-Fort Worth, TX Houston-Galveston-Brazoria, TX

Detroit-Ann Arbor-Flint, MI

Miami-Fort Lauderdale, FL

Seattle-Tacoma-Bremerton, WA

3. Metropolitan Areas for which a local index is 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 their present 1982-84=100 base to a 1993-95=100 base, 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 substantially 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.

A Note on Seasonally Adjusted and Unadjusted Data

Because price data are used for different purposes by different groups, the Bureau of Labor Statistics publishes seasonally adjusted as well as unadjusted changes each month.

For analyzing general price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year--such as price movements resulting from changing climatic conditions, production cycles, model changeovers, holidays, and sales.

The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data also are used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index unadjusted for seasonal variation.

Seasonal factors used in computing the seasonally adjusted indexes are derived by the X-12-ARIMA Seasonal Adjustment Method. The updated seasonal data at the end of 1977 replaced data from 1967 through 1977. Subsequent annual updates have replaced 5 years of seasonal data, e.g., data from 1993 through 1997 were replaced at the end of 1997. The seasonal movement of all items and 54 other aggregations is derived by combining the seasonal movement of 73 selected components. Each year the seasonal status of every series is reevaluated based upon certain statistical criteria. If any of the 73 components change their seasonal adjustment status from seasonally adjusted to not seasonally adjusted, not seasonally adjusted data will be used for the last 5 years, but the seasonally adjusted indexes will be used before that period.

Seasonally adjusted data, including 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.

Effective with the calculation of the seasonal factors for 1990, the Bureau of Labor Statistics has used an enhanced seasonal adjustment procedure called Intervention Analysis Seasonal Adjustment for some CPI series. Intervention Analysis Seasonal Adjustment allows for better estimates of seasonally adjusted data. Extreme values and/or sharp movements which might distort the seasonal pattern are estimated and removed from the data prior to calculation of seasonal factors. Beginning with the calculation of seasonal factors for 1996, X-12-ARIMA software was used for Intervention Analysis Seasonal Adjustment.

For the fuel oil and the motor fuels indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series. For some women's apparel indexes and the girls' apparel index, the procedure was used to offset the effects of changes in pricing methodology. For the tobacco and smoking products index, this procedure was used to offset the effects of increases in excise taxes and wholesale tobacco prices. For some alcoholic beverage series, Intervention Analysis Seasonal Adjustment was used to offset the effects of excise tax increases. For the Nonalcoholic beverages index, the procedure was used to offset the effects of a large increase in coffee prices due to adverse weather. For the Water and sewerage maintenance index, the procedure was used to account for a data collection anomaly.

A description of Intervention Analysis Seasonal Adjustment, as well as a list of unusual events modeled and seasonal factors for these items may be obtained by writing the Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes, Washington, DC 20212 or by calling Claire McAnaw Gallagher on (202) 606-6968.