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The Consumer Price IndexConsiderable public interest has been focused on the consumer price indexas an indicator of price trends in the consumer sector of the economy, andbecause of its extensive use in wage adjustments. To afford a better understandingof the index, this Appendix briefly describes its essential features,some of the problems connected with its computation, and its limitations anduses.CONSTRUCTING THE INDEXThe consumer price index in roughly its present form was first publishedby the United States Bureau of Labor Statistics (BLS) in 1921, and coveredthe period extending back to 1913. The last major revision was in 1953.The present index is designed to measure changes in the prices of goodsand services commonly purchased by wage-earner and clerical-worker familiesliving in the 3,000 towns, cities, and suburbs of the United States thathad a population of 2,500 or more in 1950. In general, the only familiesincluded are those whose major sources of income are earnings of craftsmen,factory workers, laborers, clerks, and sales and service workers. Thisgroup of families comprises about 64 percent of the urban, and 40 percentof the total, population.An over-all consumer price index is published and also various subgroupindexes. The most familiar groupings are those in which commodities andservices are classified by their end use, e. g., food, apparel, housing, readingand recreation, etc. More recently, the BLS has been publishing monthlywhat might be termed an "economic" classification: all commodities; allcommodities other than food; durable goods; nondurable goods; and services.It also publishes indexes for three major groups: (1) food, (2) commoditiesother than food, and (3) services. As of December 1956, eachof these three categories was of roughly equal relative importance in theindex—29, 37, and 34 percent, respectively.In essence, the consumer price index measures changes in the price ofa fixed "market basket" of goods and services chosen to represent the customaryspending pattern of wage-earner and clerical-worker families. Inthe computation of the index, prices of individual items or groups of itemsare assigned specific weights, based on their relative importance in the averagefamily budget for a survey year. The price changes from the base period(1947-49) for all of the items, appropriately weighted, are then combinedinto the consumer price index—which expresses the change in the price of the99