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Acknowledgments US Department of Transportation - BTS

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information on their data collection methods could not be ascertained and the data's reliability is uncertain. APIreported the Bureau <strong>of</strong> Labor Statistics (BLS) as its data source for 1981 to 2001 retail gasoline prices. Theremainder <strong>of</strong> this section discusses the BLS Consumer Price Index (CPI) data collection and estimation methodsused to derive the average retail price <strong>of</strong> gasoline.BLS uses the CPI as a measure <strong>of</strong> average price changes paid by urban consumers for a fixed basket <strong>of</strong> goods andservices. BLS estimates the CPI with a survey-based approach. Survey results define a categorization <strong>of</strong> goods andservices, a representative sample <strong>of</strong> items to track, and weights according to the consumption <strong>of</strong> an averageconsumer during a base period.Sample DesignBLS relies on two sampling frames for their CPI estimates. One represents the universe <strong>of</strong> retail outlets from whichhouseholds may purchase defined groups <strong>of</strong> commodities and services including gasoline. A second representshouseholds across urban areas. Moreover, the household frame is based on an "urban-consumer" population andconsists <strong>of</strong> households in Metropolitan Statistical Areas (MSA's) and in urban places with more than 2,500inhabitants. This "all urban" CPI (CPI-U) provides the estimates for retail gasoline prices shown in table 3-9.Thus, thisframe does not represent non-urban consumers.For the retail outlet sampling frame, BLS relies on the Point-<strong>of</strong>-Purchase Survey (CPOPS) conducted by the CensusBureau in 94 Primary Sampling Units (PSUs) identified by BLS. PSUs are based on urban counties, groups <strong>of</strong>contiguous urban counties, or MSAs. For the household sample, a noncompact clustering procedure was employedwhich dispersed households evenly within a Census enumeration district (ED). More detailed sampling designinformation can be found in BLS's Handbook <strong>of</strong> Methods at http://stats.bls.gov/opub/hom/homhome.htm.Prices for the goods and services used to calculate the CPI are collected in 91 PSUs located in 85 urban areasthroughout the country. The sample size for the CPOPS totals about 21,000 retail and service establishmentssupermarkets,department stores, gasoline stations, hospitals, etc. Food, fuels, and a few other items are pricedmonthly in all 85 locations. BLS field representatives collect all price information through visits or telephone calls inthe household surveys. Price changes are computed based on a sample <strong>of</strong> outlets selected from locations identifiedby consumers. Specific sample items are then selected from each sample outlet to ensure that the market basket isrepresentative <strong>of</strong> where households shop.EstimationBLS routinely updates its price estimates for specific items among the collection <strong>of</strong> goods and services, for example,a new car model year. BLS employs three techniques to produce new price estimates. First, an item that is directlycomparable to the previous discontinued good will be used to provide a price estimate. However, a substitute itemmay be inappropriate when goods change slightly in their characteristics. BLS relies on Hedonic regression modelingas a second "quality adjustment" for price estimates. This statistical technique can model the importance <strong>of</strong> variousquality characteristics that add value to a particular good (the fiber content and construction <strong>of</strong> apparel products forinstance). A researcher can estimate a Hedonic regression model that identifies the factors most important isdetermining the price <strong>of</strong> a good, and BLS field representatives will note these in their data collection. Imputation is athird quality adjustment used for "noncomparable" substitutions where BLS estimates the price change from previousaverages. Detailed algorithms can be found in chapter 17 <strong>of</strong> the BLS Handbook <strong>of</strong> Methods athttp://stats.bls.gov/opub/hom/homhome.htm.Effective January 1999, BLS began using a new formula for calculating the basic components <strong>of</strong> the Consumer PriceIndex for all Urban Consumers (CPI-U) and the Consumer Price Index for Urban Wage Earners and Clerical Workers(CPI-W). The new formula, the geometric mean estimator, is used in index categories that comprise approximately 61percent <strong>of</strong> total consumer spending represented by the CPI-U. Based on BLS research, it is expected that use <strong>of</strong> thenew formula will reduce the annual rate <strong>of</strong> increase in the CPI by approximately 0.2 percentage point per year.Additional information on this change was published in the April 1998 CPI Detailed Report and is available on theInternet at http://stats.bls.gov/cpihome.htm.AccuracyOne <strong>of</strong> the CPI's limitations is that it represents price movements for urban residents and may not correctly representnonurban consumption patterns. The CPI may also contain sampling error because it is estimated from a sample <strong>of</strong>

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