EPI Methodology

Thursday, 20 June 2013
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Thursday, 20 June 2013

The AIER Everyday Price Index (EPI) is a measure of the changes in prices of goods and services people buy frequently that have prices that are not contractually fixed. Fluctuations in such prices reflect the pricing risk (i.e. unexpected and unavoidable volatility) consumers face in connection with purchases they cannot easily adjust from one month to the next.

Read AIER's article on our Everyday Price Index, The EPI Reflects Basic Economic Change.

Methodology

The purpose of the AIER Everyday Price Index (EPI) is to measure the changes in prices of goods and services people buy frequently that have prices that are not contractually fixed. Fluctuations in such prices reflect the pricing risk (i.e. unexpected and unavoidable volatility) consumers face in connection with purchases they cannot easily adjust from one month to the next.

The EPI is constructed from a subset of categories of consumer expenditures, taken from the full list of categories that the Bureau of Labor Statistics uses to construct the Consumer Price Index (CPI).

For inclusion in the EPI we selected categories of consumer expenditures that include goods and services a typical consumer purchases at least once a month. These are items such as food, gasoline, utilities, personal care products, etc. We excluded infrequently purchased items (cars, appliances, computers, apparel, etc.) and payments that tend to be contractually fixed (rent or mortgage).

Each of the components included in the EPI is weighted by the expenditure share devoted to it. These weights are exactly equal to the weights used in the CPI, and they are derived from the Consumer Expenditure Survey conducted by BLS. This means that the EPI assumes the same consumer expenditure patterns the CPI does. The two methodologies are consistent with each other in this way.

The weights are adjusted annually to reflect changing expenditure patterns.

The EPI is constructed from price series that are not seasonally adjusted. The index reflects the prices actually paid by consumers every month.

The majority of series included in the EPI do not undergo quality adjustment. The quality of items such as food, gasoline, or toothpaste does not change much over time. A few series, such as cable TV services and telephone services, can potentially have quality adjustment applied to them. Such components account for less than 20 percent of the EPI.

The table below shows the component series of the EPI, arranged into thematic groups. For illustration, it also provides the weights assigned to each in 2013; weights in other years may differ.

Components of the AIER Everyday Price Index

Expenditure Category 2014 weights
EPI (total) 100%
Food and beverages 38.15
     Food at home [detail] 20.96
     Food away from home [detail] 14.60
     Alcoholic beverages [detail] 2.59
Household fuel, utilities, and supplies 15.41
     Household fuels and utilities [detail] 13.21
     Housekeeping supplies [detail] 2.20
Motor fuel and transportation 19.08
     Motor fuel 12.97
     Motor vehicle insurance 5.45
     Intracity public transportation 0.66
Recreation 8.34
     Cable and satellite television and radio service 3.71
     Video disks and other media, including rental of video and audio 0.24
     Audio disks, tapes, and other media 0.12
     Club dues and fees for participant sports and group excercises 1.55
     Admission (to movies, theaters, concerts, sporting events) 1.64
     Fees for lessons or instructions 0.53
     Recreational reading materials (newspapers, magazines, books) 0.55
Communication 8.65
     Postage and delivery services 0.36
     Telephone services [detail] 6.49
     Internet services and electronic information providers 1.80
Prescription Drugs 3.26
Child care and nursery school fees 1.83
Tobacco and smoking products 1.80
Personal care products and services 3.48
     Personal care products [detail] 1.86
     Personal care services 1.62
 
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