<%@ Language=VBScript %> <% Response.Write(cszCSS) %> Detailed Report
Consumer Price Index
-Expanded Definition-
Definition
The consumer price index is available nationally by expenditure category and by commodity and service group for all urban consumers (CPI-U) and wage earners (CPI-W). All urban consumers are a more inclusive group, representing approximately eighty percent of the population. CPI-U is the more widely quoted of the two although cost-of-living contracts for unions and Social Security benefits are usually tied to the CPI-W. Monthly variations between the two are slight.

The CPI is also available by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for many metropolitan areas.

Importance The CPI is the most widely followed monthly indicator of inflation. The consumer sector account for two-thirds of economic activity. The CPI is considered a cost-of-living measure, sit it is used to adjust contracts of all types that are tied to inflation.
Interpretation The bond market will rally when increases in the CPI are small, but bond prices will fall when the gains are larger-than-expected. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

Notwithstanding its faults,, the consumer price index is the most widely followed measure of inflation in the United States. Labor contracts are tied to changes in the CPI; social security payments are tied to the CPI; and even tax brackets are tied to the consumer price index. A Congressionally appointed commission determined that the CPI overstates the true underlying inflation rate by as much as one percentage point. This finding is disputed by the Bureau of Labor Statistics which calculates the index. Yet, Fed chairman Alan Greenspan has pointed to this overstatement on several occasions.

The consumer price index fluctuates less than the PPI because changes in prices of services-which hold a larger portion than goods in this index-are more stable than commodity prices. Nonetheless, economists and financial market participants still prefer to monitor the CPI excluding food and energy prices for its monthly stability. Food and energy prices account for roughly one-quarter of the CPI.

Usually, when investors refer to the real rate of interest, they use the interest rate such as the 30-year Treasury bond and subtract the year-over-year rise in the CPI to calculate it. Consumer prices rose 1.7% from December 1996 to December 1997; the 30-year Treasury bond averaged 5.99% in December, putting the real rate at 4.29% for the month.

Frequency Monthly.
Source Bureau of Labor Statistics, U.S. Department of Labor.
Availability Usually during the second or third week of the month.
Coverage Data are for the previous month. (Data for June are released in July.)
Revisions Monthly, none.

Annually, new seasonal adjustment factors are introduced in February with the release of January data. This revision affects the last five years of data. The magnitude of revisions is minor.