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7: Inflation
7.10: Expenditure Weight versus Relative Importance Weight

7.10: Expenditure Weight versus Relative Importance Weight

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Page ID: 287960

Martin Medeiros
Chabot College

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According to the 2023 Consumer Expenditure Survey, U.S. consumers spent, on average, $72,967 in 2022. This figure was up 9.0 percent over the previous year.

The BLS uses this spending data to determine how much income is being spent on each of the eight major groups in the market basket. Estimates of expenditures for each consumer good or service are used to produce expenditure weights for the CPI. If you spend half of your income on housing, then housing has an expenditure weight of 50 percent.

Determining the average consumer's expenditure weights is a very important part of computing the CPI, but it is only part of the story. The BLS also needs to account for the growth of each expenditure category relative to the other categories. By considering both expenditure weights and relative price growth, the BLS calculates relative importance weights.

This process is important because the sources of inflation have changed over the years. Today, money spent on services represents a higher share of the CPI than it did twenty years ago. Therefore, to keep the CPI current and relevant to market participants, the BLS needs to incorporate service sector changes into its report.

The weights give each good or service in the CPI an importance relative to all the other goods and services in the market basket (see figure 7).

Figure 7

Source: BLS (https://www.bls.gov/cpi/tables/relative-importance/)

For example, an increase of 5 percent in housing costs is more important than the same increase for telephone charges, because most consumers spend more on housing than for telephone service. Similarly, if you spend more than the average person on medical care and recreation, and prices rise sharply for those goods and services, the increase in your personal expenditures and personal price index would be larger than the increase for the average consumer.

Because the CPI is a comprehensive measure, it contains items that are included in some individuals' buying patterns and excluded from others. For example, if you are a homeowner, you are more likely to buy major appliances such as refrigerators and laundry equipment than a renter would be.

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