Business Outlook...: Living Cost Index Reflects Rise in Affluence
What does the change in the cost-of-living index (pedantically known as the Consumer Price Index) mean to you?</br></br>Do you feel richer or poorer, gayer or sad-der, less spending-prone or less saving- mind-e d? You oughtnÛªt.</br></br>The index is a yard-slick, no more, no lessÛÓa statistical measure of the buying power of the dollar. ItÛªs like the thermometer the physician puts in your mouth or the sphygmomanometer he wraps around your arm. The thermometer docs not change your fever and the sphygmomanometer doesn't alter your blood pressure. H o w ever, the readings do influence the doctor's recommendations.</br></br>For most of us, the cost-of-living index doesnÛªt have that effect. ItÛªs at least a month after the fact. The householder has already bought the coffee, hamburger and clothing and paid the rent thatÛªs priced into the index. It tells the housewife where she has been, notÛÓ as the thermometerÛÓwhere the patient is.</br></br>Nevertheless, the index has become an integral part of labor contracts in steel, automobiles, aerospace and other industries. It affects about two million workers. If the index goes upÛÓa certain amountÛÓthen wages are adjusted upward accordingly. If it goes down, then wages are adjusted down- ward (though this has seldom happened during the years in which escalator clauses have been popular). In this use, the index converts manhours !o be worked into dollars to be spent.