| Abstract: | The Consumer Price Index (CPI) is widely used to adjust wages and federal benefits as an offset to inflation, but the index contains substantial sources of bias as used for such purposes. For instance, these sources of bias, such as changes in the real cost of petroleum, the cost of environmental protection, and an inappropriate method for measuring homeownership costs, accounted for nearly half of the CPI increase in the year from November 1978 to November 1979. Because of the nature of the index, such biases will always be present, creating the risk that the CPI may be adding to the inflation that it is only supposed to measure. Therefore, a new index or indexes that are more appropriate for adjusting wages and benefits for inflation should be developed. |
