For immediate release: Tuesday, November 24, 1998
Contact: Brian Lustig (202) 331-5530 or Nan Gibson (202) 331-5546

PRESS RELEASE

NEW BOOK DISPUTES CHARGE THAT CPI OVERSTATES INFLATION

Washington, D.C. – One year after a controversial study of the federal consumer price index (CPI), the Economic Policy Institute has released a book that reevaluates calls for revisions to the CPI and reinforces the acceptability of current techniques for determining the CPI.

The congressionally appointed Advisory Commission to Study the Consumer Price Index, popularly known as the Boskin Commission, concluded in its December 1996 report that current methods for collecting price information overstated the cost of inflation by 1.1 percent. This assertion led to widespread calls to reduce the CPI and resulting annual cost-of-living adjustments to Social Security and other federal benefit programs.

In Getting Prices Right: The Debate Over the Consumer Price Index, EPI economist Dean Baker argues that the Boskin Commission misjudged the extent to which the current method of determining the CPI leads to ‘quality bias,’ defending in the process the CPI’s existing value. Baker writes that the issues surrounding the debate over the CPI “are far more complicated and less one-sided than has generally been presented,” and notes that any changes in its determination should be left to the Bureau of Labor Statistics (BLS), not a political process.

Baker makes two primary arguments in analyzing the Boskin Commission report. First, he writes that the report’s estimate of the extent to which the CPI might overstate inflation is based largely on speculation rather than well-documented evidence. Second, he finds that the Commission focused on ways in which the CPI might overstate inflation to the exclusion of ways that it might understate inflation.

With this in mind, Baker concludes that the Boskin Commission failed to make a compelling case for wholesale change to the CPI. Because of the importance of the measure for virtually all economic data, and for indexing tax brackets and Social Security, Baker suggests, changing the CPI requires a higher standard of proof than that put forth by the Boskin Commission.

Getting Prices Right includes the full text of the Boskin Commission report as well as Baker’s analysis. It also presents three additional views on the subject, including a speech by BLS Commissioner Katharine G. Abraham and testimony before the Senate by Brookings Institution senior fellow Barry Bosworth and Harvard University Prof. Martin Feldstein, who also is president of the National Bureau of Economic Research.

Dean Baker is a macroeconomist at the Economic Policy Institute. He earned an M.A. in economics at the University of Denver and a Ph.D. in economics at the University of Michigan. A specialist in monetary and fiscal policy and public finance, Baker is most recently the author of the Twentieth Century Fund paper “An Evaluation of Private Alternatives to Social Security,” as well as the EPI study “Robbing the Cradle? A Critical Assessment of Generational Accounting.”

The Economic Policy Institute is a nonprofit, non-partisan economic think tank based in Washington, D.C. Founded in 1986, EPI seeks to widen the debate about policies to achieve healthy economic growth, prosperity and opportunity in the United States.

To order copies of Getting Prices Right, contact EPI at 1-800-EPI-4844. An excerpt of this report is available here.

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