It Costs What?! Calculating the CPI Requires a Lot of Shopping Around

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The consumer price index, used to gauge inflation, has jumped 5% since June 2007. Figuring it out means the Bureau of Labor Statistics staff must collect prices for items such as pizza, laptops and cars.

Kim Gomory treks more than 850 miles each month, stopping by more than 120 grocers, gas stations, restaurants, stores, health clubs and other businesses.

But Gomory, a Honda Civic hybrid owner in her 40s, isn’t a soccer mom drawing a bead on bargains. Trace a line from her calculating consumerism in Claremont, Walnut and other communities and you’ll see how national economic policy gets made.

Shielding a tablet computer with skill worthy of a CIA operative, Gomory is among 400 Bureau of Labor Statistics staffers, including about 13 in the Los Angeles area, who compile data used to calculate the consumer price index, the best-known gauge of U.S. inflation.

The latest survey, released Wednesday, calculated that the consumer price index rose 1.1% in June — the second-largest increase since 1982 — and jumped 5% compared with June 2007. Prices in Los Angeles, Orange and Riverside counties rose 1.1% in June and 5.4% compared with a year earlier.

To the consternation of critics who say the index fails to reflect Americans’ struggles to make ends meet, the CPI is holy writ for bankers, economists, policymakers and politicians as they set mortgage and credit card interest rates, wages and government benefits programs such as food stamps and Social Security.

Before such macro decisions are made, however, it is the micro, meticulous labor of staffers such as Gomory that matters.

National market basket

Quietly, with extreme discretion, she helps fashion a national market basket, figuring what shoppers pay for a variety of goods and services. Gomory spends 10 minutes to an hour at each location, talking to folks, scrutinizing prices and taking down information while attracting as little attention as possible.

"Anything that consumers spend pennies on is eligible for pricing" as part of the 80,000 items her agency tracks to compute the CPI, said Gomory, who earned a liberal arts degree at the University of La Verne and has taken economics courses at several local universities.

Gomory spoke as she made her rounds recently at more than a dozen spots, including a health club, a dry cleaner and a camera store. In exchange for seeing how the "economic assistant" does her work, a Los Angeles Times reporter and photographer agreed not to identify the enterprises that participate voluntarily. This information is so closely held that Gomory doesn’t even disclose it to her family.

"Neither my husband nor my children or my friends know the locations I visit for CPI data, because to keep our respondents’ confidentiality is the most important thing," said Gomory, who carefully locks documents in her car trunk and palms her purple bureau credentials to hide her identity. "People can be fired from BLS if the agreement is breached."

In Claremont, Gomory breezed into a cavernous health club where a receptionist greeted her as a regular and announced her to a boss just as a visitor from "the Bureau."

Gomory checked the single member initiation fee, charges for a new family membership and monthly costs for seniors. All were unchanged from a month earlier.

Consistency counts in this nationwide tally, as she shows when she pops into a popular La Mirada restaurant.

There, her bosses in Washington, D.C., have told her, she must price a "cinnamon roll combo" with two eggs and two slices of bacon. Even if the shop owner says the dish hasn’t changed, "it is my duty to verify that there is no change. And then I look at the price: same. $5.99."

She repeats the exercise for the biscuits-and-gravy plate and the children’s cheese pizza; all were unchanged. Most products are so easy to price that Gomory often doesn’t even talk with owners.

But computers and cars? Complicated. Detailed. Time-consuming.

The Bureau of Labor Statistics, part of the Labor Department, updates its survey twice a year to keep up with technology; it does an annual revision on cars. This means, for example, that Gomory must check 40 specifications for a laptop to ensure it was the same computer that she priced at a local store the previous month.

Auto parts, repairs

At a Walnut car repair shop, where the checklist is lengthy, she was careful to show up at a convenient time to consult with its owner, Jose "Pepe" Rosenfeld, 62. "She knows how busy we are," the car repairman said, "so she often comes on the lunch breaks."

Gomory prices 20 parts or repairs. She dumped data into her computer, stopping suddenly as she punched in the $771.51 cost of an air conditioner compressor.

"Hey wait a minute! Wasn’t it $823 last month?" she asked Rosenfeld.

"The distributor lowered it," he said. "Probably, they have a big stock and want to sell it. It is good for the customers, though."

"Of course, anything that goes down in price is good," said Gomory, who later asked why another part had gone up from $193.75 to $209.97.

"Simple," Rosenfeld said, "they increased the price."

Such hikes — including a recent $5 boost in his hourly labor cost to $70, the first increase in 15 years — add to inflation. He sees consumers reacting daily: "Rather than buying new cars, people try to fix their cars. And everybody is looking for small cars."

Her bosses, after cross-checking her data and crunching reports from other staffers nationwide, come up with the CPI each month.

The survey’s critics have plenty of complaints but get particularly incensed about the monthly report’s "core rate" excluding food and energy costs.

They say it is nonsensical to talk about core inflation nationally of 0.3% in June and 2.4% compared with a year earlier. (For Los Angeles, it was 0.2% and 3%, respectively.)

"In the grocery store, they are getting two bags with what they used to [be paying to] get three," said Judy Dugan, research director of Consumer Watchdog, an advocacy group based in Santa Monica. "In the gas station, they are paying double what they were paying two years ago."

Dugan said an inaccurate CPI punishes ordinary Americans, ultimately lowering their wages and government benefits such as Social Security.

But economist Michael Boskin thinks the CPI historically has overstated inflation although lately "there are a variety of factors that make it difficult to tell how accurate it is. Foremost of these is housing."

Bureaucrats such as Gomory "are doing a professional but a complicated and difficult job, because measuring consumer prices is trying to measure something that is moving," said Boskin, a senior fellow at the Hoover Institution, a Stanford University economics professor who chaired a 1996 national advisory commission that studied the index.

"The economy is changing, the way people shop is changing, and to capture this is not easy."

The advisory commission praised the CPI for "the underlying simplicity of its concept: pricing a fixed [but representative] market basket of goods and services over time."

The group said the index didn’t do a good job reflecting decisions by consumers to substitute cheaper items for costly ones. It’s hard-pressed to keep up with new products or innovations.

At the Bureau of Labor Statistics, they’ve heard the gripes before.

Amar Mann, a BLS spokesman in San Francisco, said the agency makes a good-faith effort to account for many economic variables. It accounts for other factors, such as the extremes that Los Angeles residents pay for housing (which gets a 46% weight in the L.A. CPI).

"We do a good job," Mann said. "Gas and food are high. But many other items like housing, apparel, cars, electronics are not."

Price investigator Gomory is proud of what she does.

"Many important things in life — school lunch prices, Social Security benefits, monetary policies — are all set up by CPI," Gomory said.

Contact the author at: [email protected]

Consumer Watchdog
Consumer Watchdog
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