Consumer Price Index

The Consumer Price Index is a yardstick of changes in everyday expenses. It is used to recalculate Social Security payments each year and governs a wide range of employment and union contracts, affecting the paychecks of millions of Americans. 

How it is measured is a source of disagreement among economists.  The task of trying to replicate the buying habits of a country is difficult, almost as difficult as picking a winning bracket in the NCAA basketball tournament.  There are a number of CPI measures but the CPI-W is the one most widely quoted.  This index aims to replicate the cost of living for urban wage earners and clerical workers.  Even though many seniors are not working, the cost of living adjustment (COLA) for their Social Security check is based on this index.  Since the 1980s there has been a separate index, the CPI-E, that more accurately reflects costs for seniors, but it has not been adopted for one simple reason – cost.  Rising health care and housing costs for seniors make this index about 1% higher than the commonly used CPI-W.  

Although the index includes computer software and accessories, the cost of computers themselves do not seem to be covered.  That cost has dropped dramatically.  As I was cleaning out some files, I came across this nugget of nostalgia from a computer magazine in 1996.  Below you will see a “Desktop Workhorse” probably designed for a small businessperson and priced at over $2300 for a computer that is 1/10th as powerful as a cheap $500 computer today. (Click to enlarge)

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