Consumer Price Indexes: Common Measures of InflationFebruary 2, 2017 The folks at the Bureau of Labor Statistics (
The idea behind the
Complications arise, however, when trying to use just one index to reflect the prices faced by different groups of consumers. For instance, a working consumer will probably spend a larger portion of income on clothes and transportation than a retired consumer will, and a consumer in San Francisco will probably spend more on rent than a consumer in Portland. To adjust for differing prices faced by consumer groups, the BLS creates a number of price indexes. This article provides a brief history of the CPI, discusses a few of the different indexes, compares recent trends in consumer prices in Oregon and in the nation, and illustrates how the CPI affects workers in Oregon.
History of the Consumer Price Index
It is possible for the index to come down as consumer prices fall. This rare event is called deflation and occurred most recently in 2009, brought on by the drop in oil prices after the previous year’s steep price increase. A long-term decline in the average annual price index however has not occurred since 1955. The last extended period of deflation was during the Great Depression, when prices dropped in five out of 10 years in the 1930s, and fell almost 10 percent in 1932 alone!
More people are likely to remember the period of high inflation in the early 1980s, when high oil prices caused double-digit percentage increases in the CPI for three consecutive years. Since then, the annual change in the CPI has ranged between a low of -0.4 percent in 2009 and a high of 5.4 percent in 1990.
Defining the Consumers
The CPI-U and the CPI-W use the same price data, but the weights that are given to each item when computing the indexes are different. The weight of an item represents its share of spending in the average consumer’s total expenditure. The assumption is that the average working consumer will have different spending patterns than the population in general and will be affected by price changes differently depending on which items’ prices change.
Different weights are calculated for 87 geographic areas as well. These areas are usually metropolitan statistical areas or a combination thereof, hence the CPI’s claim to represent only urban consumers. The national CPI is reported as the city average of these areas, and averages for national regions are reported as well.
Oregon’s Consumption Patterns
There is a bumper sticker that reads, “Keep Portland Weird.” To check if Oregon’s consumption patterns are weird, at least compared to the rest of the country, we can compare the Portland-Salem, OR-WA consumption weights to the U.S. city average. The Portland-Salem combined metropolitan statistical area is the only area in Oregon where BLS calculates consumption weights. It consists of Clackamas, Columbia, Marion, Multnomah, Polk, Washington, and Yamhill counties in Oregon, and Clark County in Washington State.
The first table compares the most recent Portland-Salem weights with the U.S. city average. Once again, the figures in the table are for shares of total consumption, and do not compare prices of items across regions. The figures in the “point difference” columns are positive if Portland-Salem consumers spend a larger share of their income on the item compared with the U.S. city average, and negative if they spend a smaller share.
The table shows that, in general, residents in the Portland-Salem area spend a larger portion of their expenditures on shelter than the rest of the country, but spend less on household energy. Transportation for the average consumer in the Portland-Salem area is a smaller share of expenditures, as are medical care, and education and communication.
Consumer Price Changes in Oregon
The U.S. city average
The figures in the second table reveal the price increase in Portland-Salem over the year was 1.5 percent, more than the West’s urban areas average increase of 2.0 percent and the U.S. city average increase of 2.6 percent. The average annual increase in Portland-Salem since 2006 was 2.2 percent, more than the West’s urban areas average of 1.9 percent and the U.S. city average of 1.8 percent. Over the last 10 years, the total CPI increase in Portland-Salem was 24.0 percent, faster than the total increase of 20.4 percent in the West’s urban areas, and the U.S. city average increase of 19.1 percent.
The recent trend of prices in Portland-Salem rising faster than the U.S. has been driven by rising housing costs in the Portland area. Spending on shelter represents 35 percent of expenditures by consumers in Portland-Salem. Since 2007, the price index for shelter in the area has consistently risen faster than the U.S. city average price index for shelter. Lately, the price index for shelter in Portland-Salem has been rising more than 6 percent each year.
Oregon workers have a particularly close tie to the Consumer Price Index because Oregon’s minimum wage increases have been linked to inflation since 2004. The minimum wage was increased annually based on how much the CPI-U increased during a recent 12-month period. This link between Oregon’s minimum wage increases and the CPI is temporarily on hold as annual increases have been set by legislature through July 2022. Starting in July 2023, the minimum wage will again be linked to the CPI increase over the 12-month period through the most recent March.
More About the
The Oregon Employment Department’s Workforce and Economic Research Division provides resources for obtaining more information on the CPI. Our email subscription service sends the latest Portland-Salem figures straight to your inbox. To sign up, visit www.QualityInfo.org and navigate to the Publications Subscription Order Form and subscribe to the Consumer Price Index under Reports and Analysis. There is also a CPI calculator that allows users to compare the purchasing power of a dollar in two different time periods.
Additional information about Consumer Price Indexes is available from the U.S. Bureau of Labor Statistics website.