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Household Cost Indexes: Prototype 

Methods and Results

Robert Martin, Joshua Klick, William Johnson, Paul 

Liegey

Division of Price and Index Number Research

Bureau of Labor Statistics

October 26, 2023
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CPI Family of Indexes

Official Indexes

CPI-U Chained

CPI-U CPI-W

Research Indexes-https://www.bls.gov/cpi/research-series/

R-CPI-U-RS

R-CPI-E

R-HICP

R-COICOP

R-CPI-Income

R-C-CPI-Income

Household Cost 

Index?

New Tenant Rent 

Index?
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HCI overview

 As costs change over time, the HCIs measure the average change 

in cash outflows required for households to access goods and 

services.

 Two key elements:

„ Household-weighted aggregation (“democratic”)

„ Payments approach: focus on explicit outlays

 See BLS Working Paper 604 – “Household Cost Indexes: 

Prototype Methods and Results”
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Motivation

 Interest in a household-based complement to more “macro”-

focused CPI

 Similar products in other countries

„ U.K. “Household Cost Indices”

„ New Zealand “Household Living-Costs Price Indices”

„ Australia “Selected Living Costs Indices”

 Facilitate interesting subpopulation comparisons, though this 

presentation focuses on all urban households
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Methods: household-weighted aggregation

 Goal is equal (in population sense) weight for each household

 Create household-level expenditure shares

„ Consumer Expenditure Surveys (CE) Diary and Interview sample 

different households

„ Eligible expenditures from the Diary survey imputed to the Interview 

sample using a matching procedure based on Hobijn, et. al. (2009)

 Aggregate across items/areas first for each household using Lowe formula 

with lagged expenditure weights

 Then average indexes equally across households
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Methods: Owner-occupied housing

Payments Approach (HCI) Rental Equivalence (CPI)

• Intended to reflect actual 

homeownership expenses

• Includes property taxes, mortgage 

interest, full value of regular 

maintenance, etc.

• Usually excludes mortgage 

principal, major renovations

• Intended to capture implicit 

consumption of housing services

• Rent as a proxy (OER)

• Excludes investment

• For some groups, may differ 

substantially from actual spending 

(e.g., owners w/o mortgages)

 Future research: apply to other durable goods (automobiles)
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Methods: payments approach overview

 Mortgage interest costs

„ Product of a debt index (based on FHFA house prices) and an interest 

rate index (based on 30-year fixed data from Freddie Mac PMMS)

„ Rolling average based on loan-age and debt-age weights from CE

 Property taxes

„ Target average payments over time for a fixed dwelling stock

„ Use CE data to get implicit tax rate (aggregate tax payments / 

aggregate value) multiplied by constant quality house price index from 

FHFA
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Results
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HCI-U and CPI-U index levels

Average 12-month % change

CPI-U 1.86%

HCI-U (Payments Approach + 

Household-weighted Aggregation)

1.51%

HCI-U (Payments Approach Only) 1.46%

1

1.05

1.1

1.15

1.2

1.25

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
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December 2020 relative importance

20.2%

9.2%

4.7%

4.3%

16.0% 3.1%

14.2%

11.1%

6.6%

6.8%

3.8%

Food & Bev. Housing: Rent Housing: OER Housing: Prop. Tax

Housing: Mortgage Housing: Other Apparel Transportation

Medical Recreation Educ. & Comm. Other

15.2%

7.9%

24.3%

10.3%

2.7%

15.2%

8.9%

5.8%

6.8% 3.2%

HCI-U (2019 weights) CPI-U (2017-18 weights)
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HCI-U housing component detail

0.9

1

1.1

1.2

1.3

1.4

1.5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Owner's Payments (HR, HS, HT) Mortgage Interest (HS) Owner's Equiv. Rent (HC)

Property Tax (HR) Other Owner Payments (HT)
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Limitations

 Household-weighted aggregation

„ No lower-level heterogeneity in weights or prices

„ Infrequent purchases (challenge with high frequency weights like CCPI-U)

„ Worth the effort given small impact?
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Limitations (2)

 Payments approach

„ Timeliness of property tax data

„ Investigate a microdata approach to mortgage interest index

„ Investigate including mortgage principal
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Potential HCI uses

 Indicator of household inflation experiences based on outlays

„ Is this enough?

 Escalator for pensions, wages, etc.?

„ Pro: payments are more reflective of household budget

– Astin, J., & Leyland, J. (2023). Measuring Inflation as Households See It: Next Steps for the Household Costs Indices. 

Royal Statistical Society. Retrieved from https://rss.org.uk/RSS/media/Filelibrary/Policy/2023/Measuring_inflation_as_households_see_it_January_2023.pdf?ext=.pdf

„ Con: payments do not equal consumption

– National Academies of Sciences, Engineering, and Medicine (Eds. Sichel, D. and Mackie, C.). (2022). Modernizing the 

Consumer Price Index for the 21st Century. Washington, DC: The National Academies Press. 

doi:https://doi.org/10.17226/26485/
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Next steps

 Seeking feedback from experts and stakeholders on

„ Basic concept

„ Methods

„ Use

 Investigating lower-level heterogeneity
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Thank you!

Robert Martin

Division of Price and Index Number Research

Bureau of Labor Statistics

martin.robert@bls.gov