Modernizing price measurement and evaluating recent critiques of the consumer price index

The consumer price index (CPI) plays a critical role in measuring inflation. Recent inflation trends, however, have raised questions about its accuracy. This paper evaluates several of these critiques, including that the CPI fails to keep up with rapid changes in consumer expenditure patterns; that its methodology is out of date; that the CPI does not correctly track the cost of housing; and that it does not keep up with rapidly changing products being purchased in the market. The paper also discusses the concern that, while year-over-year inflation has slowed dramatically since reaching its peak in June 2022, consumers still face considerably higher prices than before the pandemic. Drawing on insights from the 2022 report, Modernizing the Consumer Price Index for the 21st Century, of the National Academies of Sciences, Engineering, and Medicine, the authors argue that the basic CPI methodology is sound and that it provides a robust and defensible measure of inflation. However, as consumer markets and data environments evolve, updates to CPI methodologies are necessary. The paper underscores the need for continued investment in economic statistics to ensure the CPI remains a reliable gauge, benefiting policymakers, businesses, and consumers.