The Experimental Consumer Price Index for Elderly Americans (CPI-E): 1982-2007

Article excerpt

Over the 25 years from December 1982 to December 2007, the experimental consumer price index for Americans 62 years of age and older CPI--E) rose somewhat faster than the CPI-U and the CPI-W, mainly because prices for medical care and shelter, which are weighted more heavily in the CPI-E, increased more rapidly than overall inflation during the period

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The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a representative market basket of consumer goods and services. The Bureau of Labor Statistics (BLS) publishes measures of price change for two official population groups. The Consumer Price Index for All Urban Consumers (CPI-U) represents the spending habits of about 87 percent of the population of the United States, (1) and the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the CPI-U population, represents about 32 percent of the U.S. population.

As the U.S. population ages, policymakers have become increasingly interested in issues facing older Americans. (2) In 1987, Congress directed BLS to begin calculating a consumer price index for the elderly. In response, BLS developed an experimental consumer price index for Americans 62 years of age and older. Commonly called the CPI-E, the index was reconstructed to 1982; hence, CPI-E data are now available for 25 years, from December 1982 through December 2007. (3)

The experimental CPI-E has moved somewhat differently than the CPI-U and the CPI-W over the last quarter century. From December 1982 to December 2007, the experimental CPI-E rose 126.5 percent, compared with increases of 115.2 percent for the CPI-U and 110.0 percent for the CPI-W. That translates into average annual increases of 3.3 percent, 3.1 percent, and 3.0 percent for the CPI-E, CPI-U, and CPI-W, respectively.

Methodological limitations of the CPI-E

Although the CPI-E indicates a higher overall inflation rate for older Americans compared with the CPI-U and the CPI-W, because it is an experimental index, any conclusions drawn from these data should be treated with caution. (4) This section summarizes the various limitations inherent in the methodology used to construct the CPI-E.

The first methodological limitation is that the expenditure weights used in the CPI-E are subject to higher sampling error than those used for the official consumer price indexes. For each CPI population group, the CPI is currently divided into 211 item categories and 38 geographic areas. Each item-area combination is weighted according to its importance in the spending patterns of the respective population. The population of older Americans used in the CPI-E is composed of all urban noninstitutionalized consumer units that meet one of the following three conditions:

1. Unattached individuals who are at least 62 years of age;

2. Members of families whose reference person (as defined in the Consumer Expenditure Survey) or spouse is at least 62 years of age; or

3. Members of groups of unrelated individuals living together who pool their resources to meet their living expenses and whose reference person is at least 62 years of age.

Approximately 16.1 percent of all consumer units met this definition for older Americans in 2006. (5) Because the number of consumer units used for determining weights in the experimental index was relatively small, expenditure weights used in the construction of the experimental price index have a higher sampling error than those used for the CPI-U and CPI-W. (6)

The second methodological limitation of the CPI-E is that it uses the same geographic areas and the same retail outlets as those used for the CPI-U. Retail outlets are selected for pricing in the CPI-U based on data reported in a survey representing all urban households, and the CPI-E uses the same retail outlet sample. The outlets selected thus might not be representative of the location and types of stores used by the elderly population. …