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ROBERT SIEGEL, host:

The Bureau of Labor Statistics releases the monthly Consumer Price Index at 8:30 in the morning in the middle of every month. Typically, by 8:40, economists all across the country have rummaged through the Labor Department's market basket.

Economists like Mark Zandi of Moodyseconomy.com.

Mr. MARK ZANDI (Moodyseconomy.com): It's a basket of a whole range of various goods, you know, everything from a car to an iPod to various services, medical care, educational services, everything that we plunk money down for.

SIEGEL: Selected items are weighted in terms of the average American household budget and month after month, huge consequences flow from small changes in their prices.

Mr. ZANDI: It's used by policy makers for setting interest rates. It's used by Social Security Administration to set increases in payments and it's used in various contracts and labor negotiations. It's a very important, perhaps arguably the most important economic statistic that we have.

SIEGEL: Michael Bryan, an economist and vice president at the Cleveland Federal Reserve, makes this distinction. He says the Consumer Price Index, the CPI, doesn't really measure the long-run trend of inflation that a central bank worries about. It measures changes in the cost of living, and it does that by actually sending hundreds of people out to check firsthand on tens of thousands of prices every single month.

Mr. MICHAEL BRYAN (Cleveland Federal Reserve): Yeah, I've heard an economist describe that as the hand-to-hand combat of price measurement.

SIEGEL: Yes.

Mr. BRYAN: Yeah, my hat's off to the people who go out there and can do that sort of work.

Ms. CAREN GAFFNEY: Hi there. I'm with the Bureau of Labor Statistics. We come in here every month, and...

SIEGEL: Meet Caren Gaffney, who does precisely that sort of work.

Ms. GAFFNEY: Certainly let Mike know I'm in the store.

SIEGEL: She's a retired telecommunications executive who is now an economics assistant, a price checker for the Bureau of Labor Statistics.

Ms. GAFFNEY: If I could just get you to validate the information here.

SIEGEL: We accompanied Caren Gaffney on just two stops that she made on just one day of checking retail prices in June.

Ms. GAFFNEY: Sunday six to ten? Great.

SIEGEL: We visited two supermarkets near Washington, D.C., and we can tell you nothing else about them. We are in the super discreet world of the Bureau of Labor Statistics, where retailers of all shapes and sizes, from bodegas to big boxes, and providers of all kinds of services participate voluntarily. No business gets identified.

Caren Gaffney carries a tablet, one of those portable PCs, which tells her what her assigned products are for each stop of the day and which lets her enter the prices.

Ms.�GAFFNEY: So what Im going to do here is I usually, when I go to a store, I usually have a specific path, sometimes it changes, but I usually start with produce and work right to left. Its efficient. It works for me, its logical. It's my style.

SIEGEL: You've got apples on your list.

Ms. GAFFNEY: I've got apples. So we're going to look for apples today.

SIEGEL: Her computerized checklist of items was generated by consumer surveys of what Americans buy and where they buy it.

Ms. GAFFNEY: Okay, I've got Granny Smith here, 4017, if you look on there. And the next item I have here is Gala apples.

SIEGEL: And it's $1.79 a pound now.

Ms. GAFFNEY: Okay, and it was $1.59 in May. And we're going to be looking for Florida oranges, also known as Valencia oranges.

SIEGEL: Three for $1.98.

Ms.�GAFFNEY: $1.98 so theres... now if you look at the scale here, its not quite on zero, so Im going to take one ounce off of the weight.

SIEGEL: Two of the oranges weigh 12 ounces, an average orange weighs 6...

Ms. GAFFNEY: So, I got cantaloupe melons, they're not organic. Now here it talks about a quart of strawberries are $6.99 each. Now, I went on, I've got limes again.

Explain the 75 percent change in effective...

Hi there, I'm with the Bureau of Labor Statistics. I have a couple of questions on produce.

I was looking for Macintosh apples. Do you have any of those?

Unidentified Man: Not available.

Ms. GAFFNEY: All right, have you had them in or are they out of season?

Unidentified Man: No, yeah, they're out of season.

Ms. GAFFNEY: On the limes -

Unidentified Man: Yup.

Ms. GAFFNEY: They were five for a dollar and they were on sale.

Unidentified Man: For competition purposes, we went down on price.

Ms. GAFFNEY: Okay, great. I'm going to go to aisle two, which is canned fruit, so we're going to go down here, and I'm looking for a 48-ounce jar of homestyle chunky.

SIEGEL: Homestyle chunky, down on the bottom.

Ms. GAFFNEY: There you go.

SIEGEL: There we are.

Ms. GAFFNEY: That's our jar.

I'm looking at Campbell's Pork and Beans with an easy-open pop top, 19.75 ounces.

SIEGEL: I think I've got it.

Ms. GAFFNEY: We're looking for farm-raised top skinless, bottom-skin-on fresh Atlantic boneless filets, color added.

SIEGEL: Well, we've been to two stores with you. How many stores all told will you visit today?

Ms. GAFFNEY: Well, today's going to be a short day. It's, I don't necessarily work eight hours a day. I've got a phone call that I need to make to get pricing from a local college on tuition and fees and I'll also be pricing some tires.

SIEGEL: Tires.

Ms. GAFFNEY: Tires, yup.

SIEGEL: And there are people checking prices in supermarkets for the Bureau of Labor Statistics all over the country right now?

Ms. GAFFNEY: Yup.

SIEGEL: And in good times, when inflation is relatively low, you can be charting changes that are almost glacial in pace. I mean you'll be coming back month after month to confirm that an apple costs what an apple costs.

Ms. GAFFNEY: Absolutely, yup.

SIEGEL: But we've got to check that every month.

Ms. GAFFNEY: We got to do it. It's my job.

SIEGEL: Caren Gaffney's data will go into the national mix at the Bureau of Labor Statistics. Maureen Green is the assistant regional commissioner for price programs and she says that the prices we have seen checked have been selected by the BLS. So why select non-organic Granny Smith apples instead of stuffed olives or fresh organic chives? Well, Green says the selection is based on random surveys of consumers.

Ms. MAUREEN GREEN (Bureau of Labor Statistics): We will decide what we're going to price using these random statistical techniques, and then we follow that. So it wasn't so much that somebody told us to come to this store for chives, but you're right, I mean most of the things that are in the stores that we just left were not things we priced, and they could have been very expensive, very inexpensive. The prices could have changed. Caren was sent here to look at some very, very specific items and those items are now part of the market basket for the entire Consumer Price Index.

SIEGEL: So why do so many people hear the news at 9:00 a.m. one morning in the middle of the month and say, that doesn't sound like what's happened to the prices I've seen?

Well, Mark Zandi of Moodyseconomy.com reminds us that, say, today's two-tenths of 1 percent increase in the CPI is an average.

Mr. ZANDI: It's not the same, meaning the same thing for all of us. It's somewhat plutocratic in the sense that it represents the spending patterns of all Americans and since wealthy, high-income Americans spend more, it more closely represents their spending patterns. But it's not meant to mimic the prices for the things that you buy or I buy; it's the average American in what he or she buys.

SIEGEL: So how accurate is it? Well, the BLS has spent a decade adjusting the CPI in response to the criticism that it used to overstate inflation. A study commission found that it was too slow to pick up on new products that Americans buy.

Economist Mark Bils, of the University of Rochester, says it still overstates inflation a little when it compares prices for the latest models of durable goods - say automobiles or microwave ovens or DVD players. He says that the new model is often such an improvement on the old one that to a great extent we're not buying the same product, we're buying a better one.

Mr. MARK BILS (University of Rochester): You have the opportunity to buy the goods you had before. It's just the fact is that people choose not to do it because they have better alternatives.

SIEGEL: Mark Bils's favorite example is a car that he used to own - a 1983 Honda Accord.

Mr. BILS: Which was a great car. It had no air conditioning. It had no power windows or power locks. It didn't have any, you know, air bags, etcetera, but it was, you know, I was very happy with it. It cost $10,000 in 1983. I firmly believe that if that car as it was, brand new, were to go on the market today, you couldn't get anything close to $10,000 for it because there's just so much better alternatives.

SIEGEL: Professor Bils says that we can mistake what is really deflation -that is the 1983 Honda would cost much less today - for an increase in price if we don't pay enough attention to those power windows, power locks, air conditioning and other improvements that we find in newer models.

Mark Bryan of the Cleveland Federal Reserve says come the end of the year when it's time to ask the boss for a cost of living raise, the CPI, with all of the work that Caren Gaffney and the hundreds of others like her have put into it, is a great index. [POST-BROADCAST CORRECTION: Michael Bryan, not Mark Bryan]

But, he says, for central bankers who make interest rates rise and fall, an odd spike in one category one month or a sudden drop in another, those fluctuations, which may figure heavily in the CPI, don't say much about the underlying rate of inflation. And that is why economists will sometimes exclude food or energy prices and speak of what's left as the core rate of inflation.

Mark(ph) Bryan says he and a colleague have taken that process to its logical conclusion. They've developed what they call the median consumer price index. Throw out what's rising fastest in price and what's rising slowest and just look at the item at the median, whatever that item might be.

Mr. BRYAN: So last month, for example, car and truck rentals, down 27 percent on an annual rate. I dont know why. But on the other side, jewelry and watches, up 25 percent. So you can think about subtracting out both of those measures and you continue to do that from the tails of the distribution until you get to the median good.

And it was food away from home, restaurant charges. That was the median good. And the median good changes from month to month. But whatever's sitting in the center of the consumer market basket as far as price change, we find that to have a pretty good inflation signal.

SIEGEL: Has this professional interest of yours translated at all into an obsession in the grocery store? That is, do you find yourself wondering whether that pound of coffee cost the same thing last month that it costs this month?

Mr. BRYAN: Yes it does. And, you know, Robert, I think it's going to do the same for you now that you've been out there and measured prices. You're going to say, well, is this the exact right number of ounces? Have they changed the formula at all? Yeah, it does.

SIEGEL: That's Michael Bryan of the Cleveland Federal Reserve talking with us about the Consumer Price Index, which was up 2/10ths of one percent today. You can calculate the purchasing power of a dollar in different years with an inflation calculator. The link is at our website, NPR.org.

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