Southwest Colorado Price Index

Introduction to the Southwest Colorado Price Index (SCPI) Over the last year, Fort Lewis College and the Region 9 Economic Development District of Southwest Colorado, Inc. (Region 9 EDD) have combined resources to construct and maintain a consumer price index for Southwest Colorado.  In general, a consumer price index measures the rate at which the prices of consumer goods and services are changing over time. It is a key statistic for purposes of economic and social policy-making, and has substantial and wide-ranging implications for governments, businesses and workers, households. The U.S. Bureau of Labor Statistics builds and maintains a consumer price index for the nation via monitoring the largest 87 urban areas in the country  -- the two nearest urban areas to Southwest Colorado monitored by the bureau are Denver and Phoenix.  As Southwest Colorado offers a unique and diverse economic base, we believed it appropriate to develop a price index of our own. Given the size, scope, and resources required to build a reliable price index, we have developed a pared down and slightly altered version of the Bureau of Labor Statistics consumer price index (CPI) and the ACCRA Cost of Living Index for Southwest Colorado. There are obviously several differences between these two indices, however, the major disparities include: (1) the CPI uses rents (not home prices and/or mortgage expenses) as an estimate for shelter costs, whereas the ACCRA index incorporates both rents and mortgage costs, and (2) the ACCRA index assigns weights of living expenses unique to the size of the community, whereas the CPI applies an econometric approach less influenced by community size. Given the relatively high home prices in the region and our community size, we believed it appropriate to develop both indices for the region.  Our CPI version will allow us to compare more closely with price changes in Denver and the nation, whereas the ACCRA index (we believe) more accurately reflects true changes in living costs in Southwest Colorado.  We have named our ACCRA-based index the Southwest Colorado Price Index (SCPI), with our CPI equivalent the SCPI-CPI.  The Bureau of Labor Statistics gathers prices on over 200 goods and services; whereas, the ACCRA index gathers prices on over 40 goods and services.  Since the 4th quarter of 2008, we have collected prices on nearly 60 goods and services in the region.   The main categories of our data collection include: groceries, housing, utilities, transportation, health care, and miscellaneous. SCPI Data Collection Beginning in the 4th Quarter of 2008, we have collected data on nearly 60 goods & services in the region each quarter.  We collect the data near the end of each quarter with our most recent data collection during the 3rd week of September 2009.   Here is a list of all the data inputs we collect. Note: The items selected for price comparison benchmark from the Bureau of Labor Statistics CPI and the SSCRA Cost of Living Index.  For confidentiality, we have not included the source of the data and/or the actual data itself.  For additional information please contact us at 247-7060 (Luke T Miller).

3Q 2009 Summary Results Since late 2008, our SCPI indicates the cost of living in the region has dropped 6.4%.  Grocery costs have dropped 2.3%, housing rents have increased 4.3% whereas monthly mortgage costs on a median priced home have dropped 6.5%, utility expenses have dropped 20%, transportation expenses have dropped 25%, health care costs have remained nearly flat at a 0.3% increase, and miscellaneous goods & services have increased 2.4%.  Our SCPI-CPI (our SCPI adjusted to the Bureau of Labor of Statistics CPI) indicate the cost of living in the region has dropped 2% since late 2008 versus the national CPI dropping 1.5% and Denver falling 1.7%.  The nation’s grocery tab has decreased 1.6%, housing rents have increased 0.9%, utilities have fallen 23%, transportation expenses have dropped 31%, health care costs have increased 3.2%, and miscellaneous goods & services have increased 1.6%. More Information: Introduction to CPI The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The Bureau of Labor Statistics publishes CPIs for two population groups: (1) the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) and the Chained CPI for All Urban Consumers (C-CPIU), which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self-employed, short-term workers, the unemployed, and retirees and others not in the labor force. The CPIs are based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected in 87 urban areas across the country from about 50,000 housing units and approximately 23,000 retail establishments-department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 87 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls of the Bureau’s trained representatives. In calculating the index, price changes for the various items in each location are averaged together with weights, which represent their importance in the spending of the appropriate population group. Local data are then combined to obtain a U.S. city average. For the CPI-U and CPI-W separate indexes are also published by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for 27 local areas. Area indexes do not measure differences in the level of prices among cities; they only measure the average change in prices for each area since the base period. For the C-CPI-U data are issued only at the national level. It is important to note that the CPI-U and CPI-W are considered final when released, but the C-CPI-U is issued in preliminary form and subject to two annual revisions. The index measures price change from a designed reference date. For the CPI-U and the CPI-W the reference base is 1982-84 equals 100.0. The reference base for the C-CPI-U is December 1999 equals 100. An increase of 16.5 percent from the reference base, for example, is shown as 116.5. This change can also be expressed in dollars as follows: the price of a base period market basket of goods and services in the CPI has risen from $10 in 1982-84 to $11.65. Introduction to ACCRA The ACCRA Cost of Living Index is the most reliable source of city-to-city comparisons of key consumer costs available anywhere. ACCRA COLI data is recognized by the U.S. Census Bureau, US Bureau of Labor Statistics, CNN Money, and the President's Council of Economic Advisors. Our data and methodology are described in detail and completely transparent to users. Both data and methodology are reviewed by an Advisory Board composed of academic researchers and government officials. The ACCRA Cost of Living Index is referenced in the US Census Bureau's Statistical Abstract of the US. The ACCRA Cost of Living Index is designed to provide the best possible means to compare cost of living differences among urban areas based on the price of consumer goods and services appropriate for professional and managerial households in the top income quintile. The Cost of Living Index rests on the premise that prices collected at a specified time, in strict conformance with standard specifications, provide a sound basis for constructing a reasonably accurate gauge of relative differences in the cost of consumer goods and services. Consumer expenditures cover an almost limitless range of goods and services, and no index of consumer buying can encompass all of them. Since we can’t price everything, what do we do? The standard approach, used in the ACCRA Index, is to divide consumer expenditures into categories, and then select items that represent those categories. The items used in the ACCRA Index thus are surrogates for entire categories of consumer spending. For this approach to work, price differences among urban areas for the items in the Index must accurately reflect differences for the categories they represent. The ACCRA Cost of Living Index consists of six major categories: grocery items, housing, utilities, transportation, health care, and miscellaneous goods and services. These major categories in turn are composed of subcategories, each of which is represented by one or more items in the Index. Separate component indexes are published for each of the six major categories. We’re not concerned with the extent to which consumers actually purchase the individual items in the Index. The 60 items have been chosen solely to show interarea price differences in the categories they represent. What’s important, in calculating the Index, is the ratio of an urban area’s average price to the average price of the same item nationwide. When we use a pound of whole frying chicken to represent poultry products, we’re assuming that if an area’s price for this item is 10% above the nationwide average, its prices for poultry products as a whole also are about 10% above the nationwide average. How much the ratio for each item contributes to the Index is determined by the distribution of consumer expenditures among the categories covered by the Index. The share of consumer spending devoted to the category each item represents determines that category’s importance, or weight, in the Index. The ACCRA Cost of Living Index Committee has adopted the weights based on data from the U.S. Bureau of Labor Statistics’ 2004 Consumer Expenditure Survey, using the data on the proportional distribution of expenditures by households in which the reference person has a professional or managerial occupation and by households in the upper quintile of income.