Bureau of Labor Statistics

The Consumer Price Index (CPI), a principal source of information on trends in consumer prices and inflation, affects nearly all Americans because of the many ways that it is used. For example, it is often used to increase wages and benefit payments to adjust for the erosion of consumer purchasing power because of inflation. In addition, federal tax brackets are adjusted automatically in response to changes in the CPI to prevent inflation-induced increases in tax rates. To gauge the level of inflation in consumer prices, the CPI tracks prices for a fixed "market basket" of goods and services that urban consumers purchase. This testimony discusses (1) the need for and advantages of more frequent updating of the CPI expenditure weights, (2) ongoing GAO work concerning the CPI, and (3) the Bureau of Labor Statistics' coverage of CPI improvement efforts in its strategic plan and fiscal year 1999 annual performance plan.

GAO noted that: (1) BLS uses expenditure weights to aggregate market basket items into the overall index number; (2) the preponderance of evidence GAO obtained pointed to the need for and advantages of more frequent updates; (3) this evidence included the: (a) views of professionals knowledgeable about the CPI; (b) practices of other countries; (c) results of research that show that the age of expenditure weights affects the CPI; and (d) the sizable effect more frequent updates could have on the federal budget in comparison to the relatively small costs associated with updates; (4) BLS has said it agrees with GAO's recommendation for more frequent updates and is considering the appropriate update frequency; (5) in examining BLS' FY 1999 performance plan, GAO found that it was partially successful in providing a picture of BLS' intended performance to improve the CPI's quality; (6) further, the plan did not fully portray how BLS' strategies and resources would help achieve the performance goals for improving CPI quality or how BLS would ensure that the data it uses to assess its performance are credible; (7) GAO found linkages between some, but not all, of the commission's recommendations and the plan's performance goals and indicators; (8) neither BLS' strategic plan nor its FY 1999 performance plan discusses such linkages or the lack of them; (9) BLS and the Department of Labor question the usefulness of discussing recommendations contained in particular reports, such as the Boskin commission report, in long-range planning documents; and (10) however, GAO believes such a discussion would enhance the plans' usefulness and credibility to CPI stakeholders given the great interest shown in the Boskin commission recommendations by Congress and others.