No Quick CPI Fix Joel Pbpkin  
The Consumer Price Index (CPI) was initiated by the Bureau of Labor Statistics (BLS) during World War I because it was needed to index wages during the rapid inflation of the period. It has been an American institution for most of this century. Like most institutions, it has been criticized on many occasions.</br></br>The form of criticisra has varied, at times even being directed at the compilers of the data. For example, in 1970, Nixon aide Frederick Maiek investigated the religious identity of the senior BLS staff, presumably to test the hypothesis that oneÛªs religion affects how one would compile national statistics. But while they varied in form, the criticisms have usually been from the same perspectiveÛÓthey claim the CPI goes up too fast.</br></br>As the century draws to a close, the CPI is undergoing another onslaughtÛÓthis time from the Federal Reserve Board and the new House of Representatives. And the Senate Finance Committee is scheduling hearings on the subject soon, for which it has asked the BLS to provide testimony.</br></br>The Federal Reserve staff apparently thinks the CPI goes up faster than it should. Its research on the subject has not been published, but Fed Chairman Alan Greenspan has said that if those upward biases were eliminated, $150 billion could be cut from the federal deficit over the next five years. That prospect is enticing to many politicians who want to cut Social Security benefits or raise income taxes, both of which are indexed by the CPI.</br></br>The Federal Reserve criticisms emphasize biases that stem from the index formula the BLS uses and the way certain price changes are measured. Theory and evidence, much of it provided by BLS researchers, suggest these can be sources of upward bias. Another problem frequently alleged to impart bias is quality change measurementÛÓmaking sure that the item priced this month has the same characteristics as last month's and, when it does not, adjusting the price to reflect the quality difference.