August 2002 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) increased 0.3 percent in August, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The August level of 180.7 (1982-84=100) was 1.8 percent higher than its level in August 2001.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) also rose 0.3 percent in August, prior to seasonal adjustment. The August level of 176.6 was 1.6 percent higher than the index in August 2001.

CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U rose 0.3 percent in August, following increases of 0.1 percent in each of the preceding two months. Larger increases in the indexes for energy and all items less food and energy more than offset a downturn in the food index. The index for food, which rose 0.2 percent in July, declined 0.1 percent in August. The index for food at home declined 0.3 percent as five of the six grocery store food groups registered declines. Energy costs advanced for the second consecutive month--up 0.6 percent in August. Within energy, the index for petroleum-based energy rose 0.8 percent and the index for energy services increased 0.4 percent. Excluding food and energy, the CPI-U rose 0.3 percent after increasing 0.2 percent in July. A sharp turnaround in the index for apparel, an upturn in the index for tobacco and smoking products, and a larger increase in shelter costs were responsible for the larger advance in August.

See pages 3-7 and Table 7 for the release of the Chained Consumer Price Index for All Consumers (C-CPI-U), a new supplemental index of consumer price change.

During the first eight months of 2002, the CPI-U rose at a 2.7 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 1.6 percent for all of 2001. The index for energy, which declined 13.0 percent in 2001, increased at a 13.5 percent SAAR in the first eight months of 2002. Petroleum-based energy costs increased at a 32.6 percent annual rate, while charges for energy services declined at a 0.9 percent annual rate. The food index has increased at a 1.0 percent SAAR thus far this year, following a 2.8 percent rise for all of 2001. Excluding food and energy, the CPI-U advanced at a 2.2 percent SAAR in the first eight months, following a 2.7 percent rise in all of 2001.

The food and beverages index declined 0.1 percent in August. The index for food at home declined 0.3 percent, following a 0.1 percent rise in July. Five of the six major grocery store food groups registered declines in August; the index for fruits and vegetables rose 0.2 percent. Within the fruits and vegetables group, the indexes for fresh fruits and for processed fruits and vegetables increased 0.2 and 0.3 percent, respectively, and the index for fresh vegetables was virtually unchanged. The index for meats, poultry, fish, and eggs declined 0.4 percent in August. Declines in the indexes for poultry, for fish and seafood, and for eggs more than offset price increases for beef and for pork. The index for dairy products declined for the third consecutive month, down 0.2 percent in August, largely as a result of a 0.5 percent drop in milk prices. The index for cereal and bakery products registered its second successive drop, declining 0.1 percent in August. The other two major grocery store food groups, nonalcoholic beverages and other food at home declined 0.6 and 0.4 percent, respectively. The other two components of the food and beverages index, food away from home and alcoholic beverages, increased 0.2 and 0.3 percent, respectively,

The index for housing rose 0.3 percent in August. Shelter costs, which increased 0.2 percent in July, rose 0.4 percent in August. Within shelter, the index for rent rose 0.2 percent; owners' equivalent rent increased 0.3 percent; and lodging away from home advanced 1.8 percent. The index for fuels and utilities rose 0.3 percent in August. The indexes for fuel oil and for electricity increased 2.1 and 0.6 percent, respectively, while the index for natural gas declined 0.3 percent. (Prior to seasonal adjustment, fuel oil prices rose 0.7 percent, charges for electricity were unchanged, and charges for natural gas fell 0.2 percent.) The index for household furnishings and operations declined 0.3 percent in August.

The transportation index rose 0.4 percent in August. The index for gasoline increased for the third consecutive month--up 0.5 percent in August. The index for new vehicles declined 0.1 percent in August. New vehicle prices have declined every month thus far in 2002 and are 1.6 percent lower than in August 2001. The index for used cars and trucks rose 0.5 percent in August. During the last 12 months, the index for used cars and trucks has declined 2.9 percent. Airline fares were virtually unchanged in August and have decreased 3.8 percent in the last 12 months.

The index for apparel increased 1.1 percent in August, following a 1.0 percent decrease in July. (Prior to seasonal adjustment, apparel prices rose 1.5 percent, as price increases associated with the introduction of fall-winter wear more than offset seasonal price discounting on spring-summer apparel.)

The medical care index rose 0.2 percent in August to a level 4.7 percent above its level a year ago. The index for medical care commodities--prescription drugs, nonprescription drugs, and medical supplies--increased 0.2 percent. The index for medical care services also rose 0.2 percent in August. Charges for professional services were virtually unchanged, while those for hospital and related services increased 0.7 percent.

The index for recreation increased 0.1 percent in August, the same as in July. Increases in the indexes for recreational services, for sporting goods, and for pets, pet products and services more than offset declines in the indexes for video and audio products and services, for photography, and for toys. Within the recreational services category, the indexes for admissions to movies, theaters, concerts and sporting events rose for the third consecutive month--up 0.8 percent in August.

The index for education and communication increased 0.7 percent in August. The index for college tuition and fees rose 1.3 percent. (Prior to seasonal adjustment, this index rose 2.8 percent.) The index for communication costs rose 0.6 percent, as a 1.1 percent increase in the index for telephone services was partially offset by a decline in the index for information and information processing other than telephone services. Within telephone services, local charges rose 1.2 percent and long-distance charges increased 0.8 percent. Prices for personal computers and peripheral equipment declined 1.3 percent.

The index for other goods and services, which was virtually unchanged in July, increased 0.5 percent in August. Prices for cigarettes, which declined 0.1 percent in July, rose 2.5 percent in August, reflecting excise tax increases in some areas and decreased discounting of some major brands.

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 0.3 percent in August.

Chained Consumer Price Index for All Urban Consumers (C-CPI-U)

The C-CPI-U rose 0.3 percent in August on a not seasonally adjusted basis. The August level of 105.8 (December 1999=100) was 1.3 percent higher than the index in August 2001. Table 7 contains the most recent indexes for all items and the component series that are published. Data will be published monthly in the CPI Detailed Report and are available on the CPI home page: http://www.bls.gov/cpi/. For an overview of the behavior of the C-CPI-U from December 1999 through June 2002, see the note that follows on page 4. Please note that the indexes for the post 2000 period are subject to revision.

Consumer Price Index data for September are scheduled for release on Friday, October 18, 2002, at 8:30 A.M. (EDT).

DISCUSSION OF THE BEHAVIOR OF THE CHAINED CONSUMER PRICE INDEX FOR ALL URBAN CONSUMERS (C-CPI-U)

The differences between the C-CPI-U and CPI-U measures of inflation for 2000 and 2001 are notably larger than had been expected based on prior analysis. (A table comparing these published series is available on the BLS web site at http://stats.bls.gov/cpi/superchart1.htm.) In particular, data for the C-CPI-U for the year 2000, which are no longer subject to revision, show that it increased 0.8 percentage point less than the CPI-U. In its announcement of February 2002, the BLS estimated that the C-CPI-U would likely increase at an average annual rate of 0.1 to 0.2 percentage point less than the CPI-U.

There are several factors that may help to explain the large divergence in 2000. First, the simulations used by BLS to anticipate the extent of the difference between the two measures reflected economic conditions in the early 1990s and those conditions may have changed since then. Second, there may be special circumstances for the year 2000.

Changes since 1990. Since the February announcement of the C-CPI-U, the BLS has extended the simulations it presented for 1990-95, in the process correcting minor errors and including the years 1996 through 1999. These updated simulations (available on the BLS web site at http://stats.bls.gov/cpi/superchart2.htm) illustrate two important points. First, the average difference between the simulated CPI-U and C-CPI-U in the 1990-95 period--i.e., more than 0.2 percentage point--was somewhat larger than it had been as earlier estimated. Second, the differences between the two simulated indexes expanded consistently during the 1996-99 period, reaching 0.5 percentage point in 1999.

In 2000, the CPI-U's underlying expenditure weights were about six years old. Under current practice, the BLS will update CPI-U expenditure weights every two years, and with such biennial updating the weights will be, on average, only three years old. To examine the importance of expenditure weight age in 2000, a CPI-U using 1997-98 weights was simulated. That index increased by 3.3 percent during 2000, 0.1 less than the official CPI-U. This suggests that, even if the CPI-U had employed biennial updating in 2000, the difference between it and the C-CPI-U would have been 0.7 percentage point, still well above earlier expectations.

Relative price changes in 2000. Another more likely contributor to the growing gap is increased dispersion in relative component index changes during 2000. In general, the CPI-U and the superlative C-CPI-U will diverge to the extent that (a) component indexes have rates of inflation that differ from each other and (b) expenditure shares reflect a shift in consumer purchases toward those item categories that have fallen in relative price. Therefore, when there is more variation in price movements across component indexes, there is more room for the Laspeyres and superlative indexes to diverge.

Inflation in CPI component indexes varied more widely during 2000 than during the preceding several years. The variability of December-to- December component index changes was computed for each year in the historical simulation data base, weighted by component expenditure shares in that year. Calculated in this way, the variability rose in each year from 1998 through 2000, and was higher in each of those years than in any year from 1992-1997.

Two examples of indexes with unusual index movements in 2000 were computers and natural gas. The indexes in the expenditure class consisting of personal computers and other information-processing goods and services fell sharply in 2000. The series for personal computers and peripheral equipment dropped by 22.7 percent, and for the expenditure class as a whole the December-to-December decline was 15.6 percent. By contrast, the CPI-U index for utility natural gas rose 36.7 percent in 2000.

The significance of the component series can be seen by excluding them from the CPI-U and C-CPI-U calculations. When we do this, the divergence between the two aggregate indexes drops to 0.4 percentage point, a gap more nearly consistent with the historical range. In the C-CPI-U, the upward price movement for natural gas and the downward movement for the information processing category effectively cancel each other out, and with these components deleted the overall index change for 2000 remains at 2.6 percent. By contrast, the estimate for 2000 in a 1997- 98 weighted CPI-U is lowered from 3.3 to 3.0 percent.

Comparison with other series. The 2000 results for the C-CPI-U, and the gap between that index and the CPI-U, can also be compared to the Personal Consumption Expenditures (PCE) price indexes published by the Bureau of Economic Analysis (BEA) of the Department of Commerce. Between December 1999 and December 2000, the published PCE index, which uses a chain superlative formula, rose 2.5 percent, only 0.1 percentage point less than the C-CPI-U increase. The BEA also produces a quarterly PCE series using fixed 1996 weights for comparison purposes. As is the case with the CPI data series, the difference between the fixed weight and superlative PCE measures widened consistently in the 1996-2000 period. Between the fourth quarters of 1999 and 2000, the chain PCE index rose by 2.5 percent and the fixed-weight index by 3.0 percent.

More recent data. The gap between the superlative and fixed-weight PCE measures narrowed after 2000, and the same is true in CPI data. For the 12-month period ending December 2001, the gap between the C-CPI-U increase and the CPI-U increase previously reported is smaller than for the corresponding period in 2000 (0.6 percentage point compared to 0.8 percentage point). For the 12 months ending July 2002, the C-CPI-U increased by 1.1 percent, compared to the CPI-U increase of 1.5 percent. It must be emphasized, however, that the 2001 and 2002 C-CPI-U data are subject to revision, and the revised data could lead to either higher or lower inflation estimates for those years.

NOTE ON A NEW, SUPPLEMENTAL INDEX OF CONSUMER PRICE CHANGE

The Bureau of Labor Statistics began publishing a consumer price index (CPI) called the Chained Consumer Price Index for All Urban Consumers, effective with release of July data on August 16, 2002. Designated the C-CPI-U, the index supplements the existing indexes already produced by the BLS: the CPI for All Urban Consumers (CPI-U) and the CPI for Urban Wage Earners and Clerical Workers (CPI-W).

The C-CPI-U employs a Tornqvist formula and utilizes expenditure data in adjacent time periods in order to reflect the effect of any substitution that consumers make across item categories in response to changes in relative prices. The new measure, said to be a "superlative" index, is designed to be a closer approximation to a "cost-of-living" index than the CPI-U and CPI-W. The use of expenditure data for both a base period and the current period in order to average price change across item categories distinguishes the C-CPI-U from the other CPI measures, which use only a single expenditure base period to compute the price change over time. In 1999, the BLS introduced a geometric mean estimator for averaging prices within most of the index's item categories in order to approximate the effect of consumers' responses to changes in relative prices within these item categories. The geometric mean estimator is used in the C-CPI-U in the same item categories in which it is now used in the CPI-U and CPI-W. (See Monthly Labor Review, October 1998, pp. 3-7.)

Expenditure data required for the calculation of the C-CPI-U are available only with a time lag. Thus, the C-CPI-U is being issued first in preliminary form using the latest available expenditure data at this time and will be subject to two subsequent revisions. Accordingly, with release of the July data, "final" values of the C-CPI-U have been issued for the 12 months of 2000, "interim" values have been issued for the 12 months of 2001, and "initial" values have been issued for January-July 2of 2002. In February 2003, with release of the January 2003 index, revised interim indexes for the 12 months of 2002 will be published, and the index values for 2001 will be revised and will become final. Then, in February 2004, when the monthly expenditure data from calendar year 2002 become available, C-CPI-U indexes for the 12 months of 2002 will be issued in final form and values for the 12 months of 2003 will be revised and issued as interim. The C-CPI-U index revisions are expected to be small, but in principle each monthly index could be revised from its previously published level.

BLS previously has calculated superlative indexes on an experimental basis, although these are not comparable to the C-CPI-U in all computational details. (See, for example, Monthly Labor Review, December 1993, pp. 25-33.)

The C-CPI-U is issued for national averages only and will not be seasonally adjusted. It employs a December 1999=100 reference base. Data for periods prior to December 1999 have not been calculated. The component series that are published are listed below:

All items Medical care Food and beverages Medical care commodities Food Medical care services Food at home Recreation Food away from home Education and communication Alcoholic beverages Education Housing Communication Shelter Other goods and services Fuels and utilities Services Household furnishings Commodities and operations Durables Apparel Nondurables Transportation All items less food and energy Private transportation Energy Public transportation

These indexes are published monthly in the CPI news release and the CPI Detailed Report, and the series is available electronically at the same site as other CPI data: http://www.bls.gov/cpi/.

Or contact Patrick Jackman or Rob Cage either by telephone at (202) 691- 6952 or by electronic mail at Jackman_P@bls.gov or Cage_R@bls.gov .

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