Consumer Price Index: April 2007

May 15, 2007-- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in April, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The April level of 206.686 (1982-84=100) was 2.6 percent higher than in April 2006.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.8 percent in April, prior to seasonal adjustment. The April level of 202.130 (1982-84=100) was 2.5 percent higher than in April 2006.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 0.5 percent in April on a not seasonally adjusted basis. The April level of 119.543 (December 1999=100) was 2.3 percent higher than in April 2006. Please note that the indexes for the post-2005 period are subject to revision. CPI for All Urban Consumers (CPI-U)

On a seasonally adjusted basis, the CPI-U advanced 0.4 percent in April, following a 0.6 percent increase in March. The index for energy increased 2.4 percent after advancing 5.9 percent in March. In April, the index for petroleum-based energy rose 4.6 percent versus a 10.1 percent increase in March. The food index rose 0.4 percent in April, slightly more than in March. The index for all items less food and energy advanced 0.2 percent in April, following a 0.1 percent rise in March; the index for shelter rose 0.3 percent after advancing 0.1 percent in March, resulting from an upturn in the index for lodging away from home.

During the first four months of 2007, the CPI-U rose at a 4.8 percent seasonally adjusted annual rate (SAAR). This compares with an increase of 2.5 percent for all of 2006. The acceleration thus far this year was due to larger increases in the energy and food components. The index for energy advanced at a 25.3 percent SAAR in the first four months of 2007 compared with 2.9 percent in 2006. Petroleum-based energy costs increased at a 40.0 percent annual rate and charges for energy services rose at a 9.4 percent annual rate. The food index has increased at a 6.7 percent SAAR thus far this year, following a 2.1 percent rise for all of 2006. Excluding food and energy, the CPI-U advanced at a 2.2 percent SAAR in the first four months, following a 2.6 percent rise for all of 2006.

The food and beverages index rose 0.4 percent in April. The index for food at home increased 0.5 percent, following a 0.4 percent rise in March. Upturns in the indexes for fruits and vegetables and for cereal and bakery products were partially offset by smaller increases or downturns in the other four major grocery store food groups. The index for fruits and vegetables, which declined 1.4 percent in March, rose 0.4 percent in April. The indexes for fresh vegetables and for processed fruits and vegetables increased 1.6 and 0.6 percent, respectively, while the index for fresh fruits declined 0.9 percent. The index for cereal and bakery products advanced 0.9 percent after declining 0.3 percent in March; bread prices rose 2.0 percent. The index for meats, poultry, fish, and eggs, which increased 1.1 percent in March, advanced 0.9 percent in April. Prices for beef, and for poultry rose sharply for the second consecutive month--up 1.8 and 1.5 percent, respectively--while the indexes for pork and for other meats turned down after registering large increases in March. The indexes for dairy products and for other food at home each rose 0.5 percent, while index for nonalcoholic beverages declined 0.8 percent, largely as a result of a decline in prices for carbonated drinks. The other two components of the food and beverages index--food away from home and alcoholic beverages--increased 0.3 and 0.2 percent, respectively.

The index for housing rose 0.2 percent in April, the same as in March. The index for shelter increased 0.3 percent in April, following an increase of 0.1 percent in March. Within shelter, the indexes for rent and owners' equivalent rent each increased 0.2 percent. The index for lodging away from home, which declined 2.3 percent in March, advanced 1.9 percent. The index for household energy declined 0.1 percent as a 1.0 percent decrease in the index for natural gas was partially offset by increases in the indexes for fuel oil and for electricity--up 2.1 and 0.1 percent, respectively. The index for household furnishings and operations declined 0.3 percent.

The transportation index rose 1.2 percent in April, reflecting a 4.7 percent increase in the index for motor fuels. (Prior to seasonal adjustment, gasoline prices rose 10.2 percent in April, but were 5.0 percent lower than their peak level recorded in July 2006.) The index for new vehicles was virtually unchanged. (Prior to seasonal adjustment, new vehicle prices declined 0.2 percent in April and were 1.0 percent lower than in April 2006.) The index for used cars and trucks also was virtually unchanged in April. The index for public transportation declined 0.4 percent in April, reflecting a 0.9 percent decrease in the index for airline fares. (Prior to seasonal adjustment, airline fares rose 1.0 percent.)

The index for apparel declined 0.3 percent in April, following a 1.0 percent decrease in March. (Prior to seasonal adjustment, apparel prices rose 0.3 percent. Prices for men's and boys' apparel registered the largest advance--up 1.3 percent.)

Medical care costs rose 0.4 percent in April and are 4.0 percent higher than a year ago. The index for medical care commodities-- prescription drugs, nonprescription drugs, and medical supplies--increased 0.4 percent, as did the index for medical care services . Within the later group, the index for professional services was virtually unchanged, while the index for hospital and related services increased 0.8 percent.

The index for recreation rose 0.1 percent in April. Increases in the indexes for club membership dues and fees for participant sports, for admissions to movies, theaters, concerts, and sporting events, and for fees for lessons and instructions--up 0.6, 0.6 and 0.5 percent, respectively--offset declines in the indexes for photography, for pets, pet products and services, and for other recreational goods.

The index for education and communication increased 0.3 percent in April. Educational costs rose 0.4 percent and the index for communication costs rose 0.1 percent. Within the communication group, the index for telephone services rose 0.1 percent. Land-line local service charges increased 0.5 percent, while long distance charges declined 0.2 percent and wireless telephone service charges were unchanged. The indexes for personal computers and peripheral equipment and for computer software and accessories declined 0.2 and 1.0 percent, respectively. The index for internet services and electronic information providers advanced for the second consecutive month--up 0.6 percent in April--but was 23.5 percent lower than a year ago.

The index for other goods and services increased 0.3 percent in April. A 0.4 percent decline in the index for tobacco and smoking products was more than offset by an increase in the index for personal care. Charges for laundry and dry cleaning services rose 1.5 percent.

CPI for Urban Wage Earners and Clerical Workers (CPI-W)

On a seasonally adjusted basis, the CPI for Urban Wage Earners and Clerical Workers increased 0.5 percent in April.

Consumer Price Index Levels to Three Decimal Places

Effective with this release of the Consumer Price Index (CPI), the Bureau of Labor Statistics has begun computing percent changes based upon three decimal place indexes rather than one decimal place indexes. This change applies to the All Items Consumer Price Index and all component indexes for the CPI-U, CPI-W, and C-CPI-U, for the U.S. City Average and for all other published areas. In addition, CPI index values are displayed to three decimal places in all paper and electronic publications. As in the past, percent changes are rounded to one decimal place.

This change in procedure addresses a rounding issue that has resulted in published percent changes that are 0.1 percentage point higher or lower than the same percent changes based on unrounded index values (i.e., indexes to three or more decimal places). These differences can be particularly important when percent changes are very small. Publishing the index values to three decimal places, and using these values to compute percent changes, essentially eliminates the rounding differences. This change only affects the presentation of the index data. Index values continue to be calculated from underlying price data in the same manner as in the past, and no systematic upward or downward effect on the data is introduced. The levels of future indexes will be affected only in that they will be published to three decimal places rather than one. Official CPI data previously published will not be revised.

For more information contact Patrick Jackman or Ken Stewart either by telephone at (202) 691-6952 and (202) 691-6966, respectively, or by electronic mail at Jackman.Patrick@bls.gov or Stewart.Ken@bls.gov

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Note on Sampling Error in the Consumer Price Index

The CPI is a statistical estimate that is subject to sampling error because it is based upon a sample of retail prices and not the complete universe of all prices. BLS calculates and publishes estimates of the 1- month, 2-month, 6-month and 12-month percent change standard errors annually, for the CPI-U. These standard error estimates can be used to construct confidence intervals for hypothesis testing.

For example, the estimated standard error of the 1 month percent change is 0.06 percent for the U.S. All Items Consumer Price Index. This means that if we repeatedly sample from the universe of all retail prices using the same methodology, and estimate a percentage change for each sample, then 95% of these estimates would be within 0.12 percent of the 1 month percentage change based on all retail prices.

For a 1-month change of 0.2 percent in the All Items CPI for All Urban Consumers, we are 95 percent confident that the actual percent change based on all retail prices would fall between 0.08 and 0.32 percent.

For the latest data, including information on how to use the estimates of standard error, see "Variance Estimates for Changes in the Consumer Price Index, January 2005- December 2005 in the CPI Detailed Report, February 2006.

These data are available on the CPI home page (http://www.bls.gov/cpi), using the following link http://www.bls.gov/cpi/cpivar2006.pdf

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Brief Explanation of the CPI

The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The Bureau of Labor Statistics publishes CPIs for two population groups: (1) the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) and the Chained CPI for All Urban Consumers (C-CPI- U), which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self- employed, short-term workers, the unemployed, and retirees and others not in the labor force.

The CPIs are based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected in 87 urban areas across the country from about 50,000 housing units and approximately 23,000 retail establishments- department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 87 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls of the Bureau's trained representatives.

In calculating the index, price changes for the various items in each location are averaged together with weights, which represent their importance in the spending of the appropriate population group. Local data are then combined to obtain a U.S. city average. For the CPI-U and CPI-W separate indexes are also published by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for 27 local areas. Area indexes do not measure differences in the level of prices among cities; they only measure the average change in prices for each area since the base period. For the C-CPI-U data are issued only at the national level. It is important to note that the CPI-U and CPI-W are considered final when released, but the C-CPI-U is issued in preliminary form and subject to two annual revisions.

The index measures price change from a designed reference date. For the CPI-U and the CPI-W the reference base is 1982-84 equals 100.0. The reference base for the C-CPI-U is December 1999 equals 100. An increase of 16.5 percent from the reference base, for example, is shown as 116.5. This change can also be expressed in dollars as follows: the price of a base period market basket of goods and services in the CPI has risen from $10 in 1982-84 to $11.65.

For further details visit the CPI home page on the Internet at http://www.bls.gov/cpi/ or contact our CPI Information and Analysis Section on (202) 691-7000.

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Calculating Index Changes

Movements of the indexes from one month to another are usually expressed as percent changes rather than changes in index points, because index point changes are affected by the level of the index in relation to its base period while percent changes are not. The example below illustrates the computation of index point and percent changes.

Percent changes for 3-month and 6-month periods are expressed as annual rates and are computed according to the standard formula for compound growth rates. These data indicate what the percent change would be if the current rate were maintained for a 12-month period.

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Regions Defined

The states in the four regions shown in Tables 3 and 6 are listed below. The Northeast--Connecticut, Maine, Massachusetts, New Hampshire, New York, New Jersey, Pennsylvania, Rhode Island, and Vermont.

The Midwest--Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin.

The South--Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia, and the District of Columbia.

The West--Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

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A Note on Seasonally Adjusted and Unadjusted Data

Because price data are used for different purposes by different groups, the Bureau of Labor Statistics publishes seasonally adjusted as well as unadjusted changes each month.

For analyzing general price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year--such as price movements resulting from changing climatic conditions, production cycles, model changeovers, holidays, and sales.

The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data also are used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index unadjusted for seasonal variation.

Seasonal factors used in computing the seasonally adjusted indexes are derived by the X-12-ARIMA Seasonal Adjustment Method. Seasonally adjusted indexes and seasonal factors are computed annually. Each year, the last 5 years of seasonally adjusted data are revised. Data from January 2002 through December 2006 were replaced in January 2007. Exceptions to the usual revision schedule were: the updated seasonal data at the end of 1977 replaced data from 1967 through 1977; and, in January 2002, dependently seasonally adjusted series were revised for January 1987- December 2001 as a result of a change in the aggregation weights for dependently adjusted series. For further information, please see "Aggregation of Dependently Adjusted Seasonally Adjusted Series," in the October 2001 issue of the CPI Detailed Report.

The seasonal movement of All items and 54 other aggregations is derived by combining the seasonal movement of 73 selected components. Each year the seasonal status of every series is reevaluated based upon certain statistical criteria. If any of the 73 components change their seasonal adjustment status from seasonally adjusted to not seasonally adjusted, not seasonally adjusted data will be used in the aggregation of the dependent series for the last 5 years, but the seasonally adjusted indexes will be used before that period. Note: 44 of the 73 components are seasonally adjusted for 2007.

Seasonally adjusted data, including the All items index levels, are subject to revision for up to five years after their original release. For this reason, BLS advises against the use of these data in escalation agreements.

Effective with the calculation of the seasonal factors for 1990, the Bureau of Labor Statistics has used an enhanced seasonal adjustment procedure called Intervention Analysis Seasonal Adjustment for some CPI series. Intervention Analysis Seasonal Adjustment allows for better estimates of seasonally adjusted data. Extreme values and/or sharp movements which might distort the seasonal pattern are estimated and removed from the data prior to calculation of seasonal factors. Beginning with the calculation of seasonal factors for 1996, X-12-ARIMA software was used for Intervention Analysis Seasonal Adjustment.

In January 2007, BLS adjusted 37 series using Intervention Analysis Seasonal Adjustment, including selected food and beverage items, fuel oil, motor fuels, vehicles, jewelry, admission to sporting events and educational books and supplies. For example, this procedure was used for the Motor fuel series to offset the effects of damage to oil refineries from Hurricane Katrina, as well as the effects of implementing new fuel requirements in the United States.

For a complete list of Intervention Analysis Seasonal Adjustment series and explanations, please refer to the article "Intervention Analysis Seasonal Adjustment", located on our website at: http://www.bls.gov/cpi/cpisapage.htm.

For additional information on seasonal adjustment in the CPI, please write to the Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes, Washington, DC 20212 or contact Jeff Wilson on (202) 691- 6968 by e-mail at Wilson.Jeff@bls.gov. If you have general questions about the CPI, please call our information staff at (202) 691-7000.

Source: BLS