A Blueprint for Modernizing the Consumer Price Index

At BLS, we never stop improving. We highly value any input from our data users, technical advisors, and other experts that helps us improve our high quality economic statistics. On May 3, 2022, we welcomed the latest evaluation of one of our statistical programs from the National Academy of Sciences, Committee on National Statistics (CNSTAT): Modernizing the Consumer Price Index for the 21st Century.

As we first reported in December 2019, CNSTAT convened an expert panel to study the Consumer Price Index (CPI). In our update in August 2021, we shared the panel membership and described the public meetings where the panel gathered information for its report. Now that the panel has completed its report, we share our plans to address their recommendations:

• Adopt an alternative data strategy that significantly expands the use of new data sources and collection methods.
• Improve the timeliness and quality of market basket weights in the CPI.
• Continue research to enhance and inform the public’s understanding of consumer price change for shelter and medical care.
• Calculate income-based CPIs and address methodology limitations.
• Collaborate across the federal and international statistical system.

Use Alternative Data Sources

The chapter on modernizing elementary indexes focused on alternative data sources. Using data from sources beyond traditional surveys is a theme throughout the report. The recommendation to develop a household scanner data program would be a long-term strategy to address many challenges of calculating an accurate and timely CPI. BLS agrees with the panel to seek new data sources to improve every aspect of price index calculation: prices, expenditures (including the quantities purchased), quality adjustment, modeling, estimation, and imputation. Doing so will enable BLS to improve and expand the data we produce and provide users the data they need when they need it.

Even before the CNSTAT report, BLS has been busy building a pipeline of alternative data sources and improving our estimation methods for the CPI. Increasing the focus on alternative data should generate a steady flow of new data sources. This focus also will improve our ability to collect data through a variety of methods and give us new opportunities to address quality change. Consistent with our values to provide accessible information, we will keep you informed about new data sources and methods through the BLS website.

Improve Timeliness and Quality of Market Basket Weights

Beginning in January 2023, BLS plans to update market basket weights in the CPI annually, using 1 year of data. This change will immediately improve the timeliness of the market basket. BLS will continue our efforts to collect and process data more quickly to calculate the CPI using the most recent spending information.

BLS uses several data sources to adjust data collected in the Consumer Expenditure Surveys to calculate the CPI market basket weights. BLS will analyze the feasibility of using business data from the Bureau of Economic Analysis to adjust for categories consumers are reluctant to report, such as alcohol and tobacco. BLS plans to research alternative data sources to improve expenditure estimates when information from respondents is missing or aggregated.

BLS continues to believe collecting data directly from consumers is important to achieve our measurement objective. We are conducting research on a Household Cost Index, which requires household-level expenditure estimates to calculate household-specific indexes. As the panel notes, indexes for specific populations also require linking expenditures with information about households. Given current resources, we do not plan to expand our use of data from other sources in the next few years to supplement data collected in the Consumer Expenditure Surveys. In the future, BLS could pursue a household scanner data program to address the concerns the panel raises regarding the Consumer Expenditure Surveys.

Modernize Shelter

BLS is exploring alternative data sources to supplement rents collected in our housing survey and improve imputation of rental equivalence estimates for owner-occupied housing . We will continue to produce research indexes that meet user needs. BLS plans to publish research on a rent index focused on new tenants. Future research will target alternatives to rent data as a proxy for rental equivalence in predominantly owner-occupied areas and alternatives to the rental equivalence approach for high-end properties.

All BLS consumer indexes currently use a rental equivalence approach to target a cost-of-living measurement objective. Research indexes based on occupancy (renter and owner) will provide users with more insight. Some users need indexes for certain populations. As already mentioned, BLS will continue to research a Household Cost Index that uses a payments approach for owner-occupied housing. Some of these research indexes may ultimately be “promoted” to official status.

Modernize Medical Care

BLS uses an indirect method to price health insurance because directly pricing health insurance premiums is difficult. We have confirmed the retained earnings data incorporate rebates and will pursue further improvements to the indirect approach. We are pursuing implementation of claims data for physician’s and hospital outpatient services and will monitor hospital price transparency data as a possible data source in the future. Research comparing the indirect and direct methods is well underway and will be published initially as a research paper.

Calculate Supplemental Population Price Indexes

BLS continues research on producing price indexes by income groups. While BLS recognizes the limited benefit of reweighting the market basket to create indexes for particular population groups, we believe indexes for renters and owners will provide more insight into measuring price change for shelter. BLS will continue to seek cost-effective methods to study household behaviors and seek resources to collect household scanner data linked with demographics.

Collaborate with Other Statistical Organizations

Another theme throughout the report is communication and collaboration among statistical agencies. The panel recommended expanding collaboration, especially in research and data sharing. As the complexity of data sources and methods increases, BLS also needs to communicate with stakeholders to maintain transparency. Our practice is to announce on the BLS website in advance any changes to our data sources or methods. We will continue to share research index results to document the impact of these changes. BLS is looking into new ways of sharing data and improving transparency.

We value our partnerships with other agencies in the federal and international statistical community. In June 2022, we will share the CNSTAT recommendations with the Federal Economic Statistics Advisory Committee and discuss our plans. We will continue to seek out new opportunities to connect and collaborate with colleagues in the government, academic, and private sectors as we improve our statistics. We also will ensure our staff has the skills to innovate the modern methods of the future. In the last few years, BLS developed an in-house Data Science Training Program designed to bring awareness and improve the skills of BLS staff in key areas of data science. This annual program introduces a new cohort of BLS staff to these concepts, with plans to scale for larger cohorts in the future and include more specialized learning streams.

It is an exciting time to produce economic statistics. Their importance is paramount, and the opportunities have expanded to improve their accuracy, relevance, and timeliness. The CNSTAT’s latest report on the CPI is a valuable guide to help us keep improving and continue to produce gold standard data well into the future.