The first hundred years of the Consumer Price Index: a methodological and political history
From businesses to government agencies to senior citizens, groups with often competing aims and desires use the Consumer Price Index. In attempting to satisfy their disparate needs, the Bureau of Labor Statistics frequently is challenged to produce a statistic that is both timely and accurate. This technical and political history explains both how and why the Bureau has come to produce a family of Consumer Price Indexes to address the challenge.
Of all the economic statistics produced by the U.S. federal government, none has a direct impact on the lives of everyday Americans quite like the Consumer Price Index (CPI). Numerous government programs, such as Social Security benefits, are adjusted each year on the basis of changes to the CPI. Countless contracts—whether business agreements, government obligations, leases, or court orders—also utilize the CPI, to adjust the dollar amounts associated with these settlements. For some, the CPI seems to be a rather difficult and abstract thing to understand. Others view the index with suspicion, a statistic produced by the recondite, esoteric labors of government economists and statisticians.
The truth, however, is that the ideas, history, and workings of the CPI are neither too difficult nor too secretive for the layperson to comprehend. This article presents a history of the creation and evolution of the CPI: a history of both how the Bureau of Labor Statistics (BLS, the Bureau) has gone about measuring the change in the cost of purchasing some mix of consumer goods and services and how the CPI has been used over approximately the previous 100 years. The story related will demonstrate that the CPI has never existed in isolation of the day’s events. Rather, events of the time almost always demanded active engagement from the Bureau, and input from business groups, unions, and the public has influenced the evolution of the CPI in important ways. For those who are already knowledgeable about current CPI methods, the article recounts the backdrop to recent and past methodological decisions, providing the why along with the how pertaining to those decisions. Interweaving the technical history of the CPI with the context of the broader political economy elucidates a far more compelling account than does covering the methodological history in isolation.
The article tells the history of the CPI in seven short, self-contained minihistories. The story begins in the late 19th century, proceeds through World War I, the New Deal, World War II, the postwar era, and the 1960s and 1970s, and closes with events that took place from the 1980s through 2004. Throughout it all, the Bureau is seen to be a responsive, often proactive, sometimes passive agency that established and still holds forth the CPI as a vital, evolving statistic.
The ingredients for a “cost of living” index
The precursor to the modern CPI began with data published in 1919 for 32 major shipbuilding and industrial centers. The data were estimated to go back to 1913; an index for the United States was first published in 1921. The fact that the Bureau was able to estimate data back to 1913 suggests that the collection of data on retail prices and consumer expenditures began far earlier than the publication of information on shipbuilding and industrial centers in 1919. Indeed, the groundwork that laid the foundation for the modern CPI began nearly at the very beginning of the establishment, in 1884, of a federal bureau to “collect information upon the subject of labor, its relation to capital, the hours of labor, and the earnings of laboring men and women, and the means of promoting their material, social, intellectual, and moral prosperity.”1