August 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 August, before seasonal adjustment, to a level of 163.4 (1982- 84=100), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. For the 12-month period ended in August, the CPI-U has increased 1.6 percent.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) also rose 0.1 percent in August, prior to seasonal adjustment. The August 1998 CPI-W level of 160.0 was 1.4 percent higher than the index in August 1997.

CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U rose 0.2 percent in August, the same as in July. In August the food index increased 0.2 percent for the second consecutive month. Prices for food at home advanced 0.3 percent as a sharp increase in prices for dairy products was partially offset by a decline in the index for fruits and vegetables. The energy index, which was unchanged in July, declined 1.0 percent in August. The index for petroleum-based energy decreased 1.4 percent, and the index for energy services fell 0.4 percent. Excluding food and energy, the CPI-U increased 0.2 percent in August, the same as in July. An upturn in the index for apparel, reflecting the introduction of fall-winter wear, was largely offset by smaller increases in the indexes for cigarettes and airline fares, coupled with a decline in the index for telephone services.

Feb. Mar. Apr. May June July Aug. Aug. `98 Aug. `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 eight months of 1998, the CPI-U rose at a 1.6 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 10.5 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 2.4 percent SAAR in the first eight months of 1998. Excluding food and energy, the CPI-U has advanced at a 2.5 percent rate thus far in 1998, compared with a 2.2 percent rise for all of 1997.

The food and beverages index rose 0.3 percent in August. The index for food at home increased 0.3 percent in August, the same as in July. A 1.6 percent increase in the index for dairy products accounted for almost half of the August food at home advance. The indexes for other food at home--reflecting a 5.3 percent increase in butter prices--and cereal and bakery products rose 0.7 and 0.5 percent , respectively. On the other hand, prices for fruits and vegetables and for non-alcoholic beverages turned down in August, and the index for meats, poultry, fish, and eggs moderated. The index for fruits and vegetables, which rose 0.3 percent in July, declined 0.4 percent in August. The indexes for fresh fruits and for fresh vegetables declined 0.5 and 1.0 percent, respectively, more than offsetting a 0.5 percent increase in the index for processed fruits and vegetables. (Prior to seasonal adjustment, prices for fresh fruits rose 0.5 percent, while fresh vegetable prices fell 3.9 percent.) The index for meats, poultry, fish, and eggs rose 0.3 percent in August, following a 0.5 percent increase in July. A 0.3 percent decline in meat prices was more than offset by increases in prices for poultry, eggs, and fish and seafood. Prices for poultry and for fish and seafood rose 1.5 and 1.2 percent, respectively, and the index for eggs rose 1.0 percent. The other two components of the food and beverage index--food away from home and alcoholic beverages--rose 0.2 percent and were unchanged, respectively.

The housing component rose 0.1 percent in August. Shelter costs rose 0.3 percent, following increases of 0.2 percent in each of the preceding two months. Within shelter, the index for rent rose 0.3 percent; owners' equivalent rent, 0.2 percent; and the cost of lodging away from home, 0.7 percent. The index for fuels and utilities, which was unchanged in July, declined 0.4 percent in August. The indexes for electricity and for fuel oil each declined 0.9 percent, more than offsetting a 0.4 percent rise in the index for natural gas. (Prior to seasonal adjustment, charges for natural gas declined 0.5 percent.) The index for household furnishings and operations declined 0.2 percent in August.

The transportation component was unchanged in August, following a 0.3 percent rise in July. The index for motor fuel, which was unchanged in July, declined 1.6 percent in August. Gasoline prices have fallen 10.1 percent thus far in 1998 and are 23.3 percent lower than their peak level in November 1990. The index for new and used vehicle prices rose 0.2 percent. The index for new vehicles, which increased 0.5 percent in July, rose 0.3 percent in August. (Prior to seasonal adjustment, new vehicle prices rose 0.1 percent.) The index for used cars and trucks fell 0.1 percent. Public transportation costs increased 2.2 percent in August. The index for airline fares, which typically declines in August, increased 0.2 percent.

The index for apparel rose 1.1 percent in August, following a 0.3 percent decline in July. (Prior to seasonal adjustment, apparel prices rose 1.5 percent, reflecting the introduction of higher priced fall-winter wear.)

Medical care costs rose 0.4 percent in August to a level 3.5 percent above a year ago. The index for medical care commodities--prescription drugs, nonprescription drugs, and medical supplies--increased 0.6 percent. The index for medical care services rose 0.3 percent. Charges for professional services and for hospital and related services each increased 0.3 percent.

The index for recreation costs rose 0.1 percent in August. Increases in the indexes for admissions to sporting events, for club membership dues and fees for participant sports, and for books were partially offset by declines in the indexes for sporting goods and for other recreational goods.

The index for education and communication declined 0.5 percent in August. A 0.4 percent increase in education costs was more than offset by a decline in the index for information processing costs. Within the latter group, the indexes for telephone services and for personal computers and peripheral equipment declined 1.1 and 5.5 percent, respectively.

The index for other goods and services, which rose 0.7 percent in July, increased 0.1 percent in August. The deceleration largely was attributable to moderation in the index for tobacco and smoking products, which rose 0.1 percent in August after increasing 2.6 percent in July.

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 0.1 percent in August.

Consumer Price Index data for September are scheduled for release on Friday, October 16, 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 Index 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 was 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.

Arithmetic Mean (Laspeyres) Formula

1. Selected shelter services:

A) Rent of primary B) Owners' equivalent C) Housing at school, residence rent of primary excluding board residence

2. Selected utilities and government charges:

A) Electricity C) Residential water and E) Telephone services, sewerage maintenance local charges

B) Utility natural gas D) State and local F) Cable television service registration, license, and motor vehicle property tax

3. Selected medical care services:

A) Physicians' services C) Eyeglasses and eye E) Hospital services care B) Dental services D) Services by other F) Nursing homes and medical professionals adult daycare

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.

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. Since release of the January CPI in February 1998, the expenditure weights applied to CPI categories have been based on consumer spending patterns for 1993-95.