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The Latest on Improving the Accuracy of the Consumer Price Index

We first reported in December 2019 on the expert panel convened by the National Academy of Sciences, Committee on National Statistics (CNSTAT), to study the U.S. Consumer Price Index (CPI). At the time, we were looking forward to the upcoming baseball season—and we didn’t know yet how different the 2020 season would be. Since then, CNSTAT assembled a panel of experts to tackle some of the biggest issues facing the CPI. The panel is chaired by Daniel Sichel, professor of economics at Wellesley College. Panel members include members of academia and experts at government agencies. Visit the CNSTAT website to review the panel members’ biographies and see the breadth of accomplishments and experiences on this team.

While the future of the baseball season that spring was uncertain, the CNSTAT panel on Improving Cost-of-Living Indexes and Consumer Inflation Statistics in the Digital Age forged ahead. The panel held a public meeting virtually on May 27, 2020, and invited BLS staff and luminaries from across the statistical community to clarify the study’s scope. The discussion centered on how we can harness new sources of data to improve CPI methods and produce accurate, timely, and relevant measures of consumer price change.

The baseball season finally got underway over the summer of 2020, and the CNSTAT panel continued its work. They held closed sessions to discuss the issues and to plan the gathering of information. The panel envisioned a series of public workshops designed to gather information from top experts in the field. Unlike the fate of the 2020 Major League All-Star Game, this gathering of experts would go on—as a series of virtual sessions rather than the typical one- or two-day event.

With the Washington Nationals out of playoff contention, everyone focused on the first workshop session held October 2, 2020. At this session, the panel discussed the challenges of measuring price change for different population groups. The CNSTAT panel added this topic to their scope of work in the May meeting. The panel heard from presenters in academia who use highly granular data and uncover measurement issues when combining information across households. The panel also heard from the United Kingdom’s Office for National Statistics and BLS about each agency’s efforts to improve price measurement for different population groups. Staff from the Bureau of Economic Analysis (BEA) also discussed potential uses for these indexes.

The next two workshop sessions (October 7, 2020 and October 30, 2020) centered on new data sources as an alternative to data from traditional surveys. The panel brought together experts from the Office for National Statistics, Statistics Canada, Statistics Belgium, and the Australian Bureau of Statistics. A benefit of a virtual meeting was the ability to convene people from so many countries without the cost of travel—although it was a challenge to coordinate a meeting over so many time zones. It is both reassuring and enlightening to hear that other countries face similar challenges and opportunities regarding new data sources. To give another perspective, the panel also convened experts from academia and the private sector to review research conducted outside of the statistical agencies. The panel heard about automated data collection efforts and methods to address quality change using new sources of data.

The final sessions (December 15, 2020 and March 31, 2021) tackled housing and medical care, arguably the most difficult areas to measure in the CPI market basket. Measuring the change in the cost of shelter for homeowners is a longstanding challenge. Since the late 1970s, BLS has used an approach called owner’s equivalent rent, which aims to isolate homeowners’ consumption of shelter services from their capital investment in a home. This method has been as hotly debated as baseball’s addition of the designated hitter around the same time. Presenters from BLS, BEA, Statistics Canada, and academia discussed potential improvements to owner’s equivalent rent and alternatives such as a user cost approach (how much it costs a homeowner to own their home).

Measuring price change for medical care services and health insurance is another longstanding challenge. While the panel’s scope is limited to health insurance, any changes to the BLS approach affect the larger scope of measuring price change for medical care services. The panel invited experts in health economics from government, academia, and nonprofits to discuss critical questions about quality change—such as medical care outcomes, utilization rates, and risk premiums.

With the All-Star public sessions now complete, the panel is weighing the information it has gathered. The panel originally planned to deliver its final report around the start of the 2021 baseball season, but the broader scope pushed back their timeline. We now expect the final report to coincide roughly with the beginning of the 2021 World Series. A truly global series of meetings produced a wealth of information for the panel to sift through. As they deliberate, we will enjoy the baseball season and report back on their recommendations in the fall.

1 comment on “The Latest on Improving the Accuracy of the Consumer Price Index

  1. David Friedman says:

    Thanks for this update – so glad to see that this effort is nearing completion with delivery of the report this Fall. This Panel was one of the things that almost made me reconsider retiring when I did in January 2021 – I look forward to reading its findings.

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