Introducing the “More Accurate Consumer Price Index”

Scott Winship

Abstract Particularly since the 1990s, federal statistical agencies have worked to improve the ability of various price indexes to measure changes in the cost of living. However, in recent years, some have sent mixed signals to researchers about the relative merits of different measures. As a result, academic and policy researchers routinely use theoretically and empirically inferior price indexes in their analyses of real income changes. Moreover, a cumulative body of research has identified and estimated the magnitude of a number of biases that affect all of today’s widely used price indexes. These biases remain due to data inadequacy, methodological uncertainty, bureaucratic inertia, and political considerations. Nevertheless, there is little dispute about the direction of the overall bias in these indexes, and considerable consensus as to the magnitudes of the individual biases. It is very likely that all the most commonly used price indexes overstate the rise in the cost of living by a substantively important amount. This paper summarizes the evidence on these biases and translates it into a new “More Accurate Consumer Price Index” (MACPI). It provides annual index values from 1973 to 2023 and illustrates the importance of bias correction by showing a number of long-term trends in wages, earnings, income, and wealth. While the most widely cited inflation measure, the Consumer Price Index for All Urban Consumers (CPI-U) suggests that the average hourly wage of production and nonsupervisory workers rose by 2 percent from 1973 to 2023, and the superior Personal Consumption Expenditures price index (PCEPI) indicates a rise of 30 percent, using the MACPI, wages rose by 61.5 percent. The median wage of prime-age male workers fell by 15 percent using the CPI-U and rose by 9 percent using the PCEPI, but it rose by 35 percent using the MACPI. Other comparisons are similarly striking. Read the entire working paper here .