Statistics Chief Defends CPI’s Accuracy

The federal government’s chief numbers cruncher on Thursday defended the accuracy of the consumer price index, rejecting the conclusion of an independent commission that the CPI overstates inflation by 1.1 percentage points.

Katherine Abraham, commissioner of the Bureau of Labor Statistics, said her agency is improving the way it calculates the CPI but that it will not have a revised version of the typical consumer’s “market basket” of goods and services until 1998.

Until then, she said, there is “not a lot . . . for us to be doing about the problem” of possible overstatement of inflation.

Abraham’s blunt comments could take some of the steam out of recent hopes that a revised CPI could help trim federal spending. Social Security payments, military and civilian pensions, federal tax brackets and tax exemptions all are linked to the CPI. If a change in the calculation method causes the CPI to rise more slowly, the government would spend less on Social Security and pensions and collect more in income tax revenues.

In polite but unmistakable terms, Abraham disputed the widely reported findings of a commission headed by Stanford University economist Michael Boskin that the CPI consistently overstates the rate of inflation.

According to the government’s calculations, the inflation rate has been averaging about 3% a year. The Boskin commission said the annual rate would be a negligible 1.9% if the CPI were calibrated more accurately.

Abraham insisted that about 0.7% of the 1.1% differential cited by the Boskin commission is based on assumptions that cannot be backed up by statistical evidence. These “judgments,” she said, cannot be easily translated into the CPI figures the government issues each month to measure changes in the cost of living for urban consumers.

Her argument could be a disappointment for the Clinton administration and congressional Republicans, who had been hoping that a consensus among experts that the CPI overstates inflation would give them ammunition to help balance the budget by reducing federal outlays and raising revenues.

Under the pretext of improving the CPI’s accuracy, politicians might feel empowered to take steps almost certain to alienate powerful interest groups, such as the lobby for the elderly.

Treasury Secretary Robert E. Rubin said Thursday that any changes would depend on a consensus among experts. The political system will “make a decision if there is broad-based agreement” over the changes needed to make the CPI a better measure of inflation,” Rubin said during a meeting with Times editors and reporters.

Abraham said her staff agrees with the Boskin commission on one finding: that the CPI might be overstated by 0.25% because of the way various goods are considered substitutes for each other when prices rise. For example, people might eat more cookies when the price of cupcakes goes up.

The BLS is working on revisions in this area, but the changes will not be ready until 1999, Abraham said.