Introduction
The United States measures the Consumer Price Index (CPI) as a metric to determine the price variation faced by urban consumers. The department that investigates this index is the Bureau of Labor Statistics (BLS). CPI is calculated for a variety of reasons. Additionally, the agency has been releasing these various CPI indices each month since 1919.
CPI-U vs CPI-W
The main distinction between the CPI-U and CPI-W indices is that the former measures the price difference experienced by urban consumers, who make up about 80% or more of the population in the United States, while the latter measures the price difference experienced by clerical workers and wage earners, who make up about 37% of the country's population.
The CPI-U index is used to determine how much prices vary among urban consumers. The BLS Department, also known as the Bureau of Labor Statistics Department, set the index. Since the index's monitoring program was initially implemented in 1978, almost 80% of the nation's population has been under its watchful eye.
CPI-W, or the Consumer Price Index for employees in office and related occupations. The corresponding index lists the costs incurred by any person earning a daily income, including secretaries, artisans, laborers, and others, for meeting daily necessities. The classification of the index places more emphasis on the modes of transportation, food, and clothes than it does on the modes of healthcare, medicine, leisure, etc.
Difference Between CPI-U vs CPI-W in Tabular Form
| Comparison | CPI-U | CPI-W |
| Index | Very general index and track retail prices which affect people in urban areas | Very specialized index and track retain prices for people in clerical posts |
| National Population | 93% | 29% |
| Calculation | Yearly inflation adjustments, eg- revenues | Cost of living annually with social security benefits |
| Weight | Goods and consumers | Transport, clothing, and food |
What is CPI-U?
The Bureau of Labor Statistics (BLS) Department of the United States of America established the CPI-U or Consumer Price Index for Urban Consumers. The index gives a general overview of the daily expenditures made by metropolitan consumers during their everyday lives.
A little over 80% of Americans overall, who make up the whole population of the United States, are exposed to the effects of the Consumer Price Index of Urban Consumers. Since the relevant index covers practically the whole population, its classification is carried out from a wider range of viewpoints.
The index's primary emphasis is placed more heavily on products, the healthcare industry, medications, home security, etc. Unemployed individuals, independent contractors, part-time employees, retirees, professionals, etc. fall under each index.
Based on a representative basket of goods and services, the Consumer Price Index For All Urban Consumers (CPI-U) tracks changes in U.S. consumer prices. The index uses the word "urban" to describe any region around a city or town with a population of at least 10,000. As a result, 93 percent of Americans are included in the CPI-U. The U.S. Bureau of Labor Statistics compiles the data and releases the index each month.
Understanding the Consumer Price Index for All Urban Consumers (CPI-U)
The most often used measure of inflation or deflation is the consumer price index (CPI). The indicator that appears in news headlines is the CPI-U, which is more commonly abbreviated as CPI. The associated CPI-W index includes 29 percent of Americans whose families primarily rely on income from hourly and clerical work. The cost-of-living adjustments for federal benefits and the inflation-indexing of income tax bands are generally determined using the CPI-W.
The BLS collects 94,000 prices from retail and service establishments each month to use as the basis for its CPI-U index. The second survey of 8,000 rental housing units was conducted to determine rental housing prices and the assumed shelter costs for homeowners.
In addition to accounting for substitution effects—consumers' propensity to look for alternatives when prices rise—CPI indices for each category of good or service are also adjusted for changes in product quality or features. For instance, consumers may choose to purchase more chicken and less beef as a result of higher beef costs.
Based on consumer spending trends identified from a different survey, CPI-U weights the prices of goods and services. The index comprises tables that display monthly price increases for several spending categories, ranging from funeral costs to clothing for newborns and toddlers. Taking into consideration seasonal price trends, the change for each category is shown both with and without seasonal adjustments.
Special Considerations
There are several applications for this index, all of which are determined by the entity employing it. For instance, the Federal Reserve officials use the report to assess the efficacy of monetary policy, while financial markets use it to gauge inflation. The CPI-U (and other CPI statistics) are used as a resource for business executives, labor leaders, and consumers when making financial choices. Other economic data are also presented on an inflation-adjusted basis by using the CPI-U to account for price fluctuations.
The CPI-U is vulnerable to significant short-term swings and is released during the second week of the month for the previous month. However, the CPI-U is a crucial indicator of the trend in consumer prices when compared to the comprehensive data, earlier reports, and other economic releases.
Key Takeaways
- The monthly change in consumer prices for a representative basket of goods and services is measured by the Consumer Price Index For All Urban Consumers.
- The main Consumer Price Index, or CPI-U, includes 93 percent of the country's population.
- The CPI-U index is different from the CPI-W index, which accounts for 29% of the American population.
- This metric tracks inflation and serves as a gauge of how well monetary and fiscal policies are working for the government.
- The Federal Reserve, company executives, labor leaders, and several other institutions involved in banking and economics all use the index.
What is CPI-W?
The Bureau of Labor Statistics established the CPI-W, or Consumer Price Index for Workers and Wages (BLS). The States concluded that estimating how much individuals spend on basic home goods could indicate whether inflation or deflation is occurring.
About 37% of the entire population of the United States of America is affected by the Consumer Price Index for wage earners and clerical employees. It is regarded as the subset of the Consumer Price Index for urban consumers since it has a lesser population under the index. The relevant index was used to determine how much social security benefits cost.
Every month, the BLS department updates and refreshes the relevant index. Craftspeople, secretaries, salespeople, laborers, employees, daily wage earners, etc. are among the people classified under the index. The family's only provider must have worked for 37 weeks or more to qualify for coverage under the relevant index.
Their primary goal is to understand a daily wage earner's spending, and they place the most emphasis on necessities like food, transportation, and clothing—rather than leisure, healthcare, or housing. The key component of the index is that anyone employed by the military or a similar organization is not taken into account.
The Consumer Price Index for Urban Wage Earners and Clerical Employees (CPI-W) is a special version of the consumer price index that tracks changes in consumer prices to which certain workers are exposed. It is prepared by the Bureau of Labor Statistics (BLS) in the United States. To reflect changes in the expenses of benefits provided to Social Security recipients, the index is generally utilized annually.
Every month, with a typical one-month lag, the Consumer Price Index for Urban Wage Earners and Clerical Workers is updated.
The CPI-W is calculated using the same data gathered by the Bureau of Labor Statistics, but only information from specific demographics is included: households where at least 50% of the household income comes from clerical or wage-paying jobs, and where at least one earner in the household must have worked for at least 37 weeks out of the year.
Many benefit plans utilize the CPI-W as a benchmark to reflect changes in benefit costs, but it may also be used to determine future contractual responsibilities.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is a monthly indicator of how prices for a market basket of goods and services have changed on average over time for urban wage earners and clerical workers. The CPI-W is based on the purchasing habits of urban wage earners and administrative support staff. Various geographic locations (regions and metropolitan areas), national population size classes of urban areas, cross-classifications of regions and size classes, the U.S. City Average (or national average), index data for these variables, and more are all accessible. More than 200 distinct things, including men's shirts, apples, and plane tickets, as well as more than 120 unique item combinations, have individual indexes available.
History
The BLS debated dropping the CPI-W in favor of the larger CPI-U population in 1974. Leaders of labor unions, Congressmen, and representatives of other groups that used CPI data opposed it, albeit they weren't against the new index per se; rather, they had an issue with it replacing the CPI-W. The larger index would no longer be "firmly founded in the experience of low- and middle-income employees," they feared. Instead, they advocated for the development of a different index to account for the additional personnel.
As a result, the BLS continued to calculate the CPI-W when it introduced the CPI-U in 1978. After three years, the CPI-W was not abandoned, but the funding for a separate survey of prices for both official populations ceased. Due to these budget constraints and the fact that there wasn't much of a difference between the CPI-U and CPI-W measures at this time, the BLS stopped using the distinct but overlapping samples of specific goods and outlets that it had been using for the CPI-U and CPI-W from 1978 to 1980.
The CPI-U sample of geographic areas, outlets, goods, and prices are currently used by BLS economists to track expenditure and pricing. The CPI-W is then created by varying the weights for different purchasing categories, reflecting the fact that the spending patterns of the population of wage earners and all urban consumers are somewhat different.
Main Differences Between CPI-U and CPI-W In Points
- The CPI-U is the index used to determine the price differences experienced by urban consumers; in contrast, the CPI-W is the index used to determine the price differences experienced by urban workers.
- On the other hand, the population making up the CPI-W is only around 37 percent of the total, compared to the population making up the CPI-U, which is roughly 80 percent and above.
- Comparatively, on the other hand, the index CPI-W also calculates the same goal, but unlike CPI-U, it is stated to be its subset. The index CPI-U categorizes the impacts of price change, but the distinction is that it concentrates on the wider meaning and is for big groups.
- Comparatively, the CPI-W index favors food, transportation, and clothes as its base whereas the CPI-U index prioritizes the consumption of commodities and consumers.
- Comparatively, on the other hand, the individuals including or eligible to be under CPI-W are the ones who are laborers, clerical jobs, craft workers, sales workers, or service workers. The individuals working as unemployed, self-employed, retired, professionals, or part-time workers, are considered to be eligible to be in the CPI-U index.
Conclusion
To summarize the subject mentioned above, it can be said that both indexes serve the same functions. Every month, a study is produced by the American Bureau of Labor Statistics (BLS) that analyses the various experiences that consumers have when buying home goods. Since its founding in 1919, the department has published several index reports.
The increase in the costs of household goods during the First World War is what led to quantifying the price difference (WW1). To estimate the approximate cost or price of any work or wager necessary for subsistence, the State chose to measure it. The government kept a close check on the measurement through ongoing surveys, finally identifying various patterns of development. Later, in the 1970s, the particular indexes, CPI-U and CPI-W, were developed.
References
- https://ecommons.cornell.edu/handle/1813/78118
- https://heinonline.org/HOL/LandingPage?handle=hein.journals/month131&div=36&id=&page=
- https://www.bls.gov/cpi/additional-resources/chained-cpi-introduction.pdf
