<< Click to Display Table of Contents >> Navigation:  Using the Geographic Assessor > Frequently Asked Questions > Data Background Information > Data Background FAQ #17 Frequently Asked Questions

QUESTION: How is Cost of Living (COL) different from the Consumer Price Index (CPI)?

 

The terms Consumer Price Index (CPI) and Cost of Living (COL) are often used interchangeably.  However, they are different metrics that address a similar question.

 

The CPI measures average change in the overall costs of a standardized market basket of goods and services over a time period for a specific location.  It is a measure of the inflation rate or prices paid by urban consumers for commonly purchased representative goods, and services.  The Bureau of Labor Statistics (BLS) produces a national CPI measure on a monthly basis and separate indexes for 27 MSAs in the US.  It measures changes in prices over time within a location, but does not address differences in prices among different locations. 

 

Cost-of-living differential models (such as ERI’s Geographic Assessor model) estimate the cost differences between two places at a specific time.  This metric assumes a specific expenditure pattern and estimates how much more or less it costs to replicate the same standard of living between locations.  In order to compare "apples to apples" in different geographic locations, the standard of living must be assumed to be constant. 

 

The CPI and many cost-of-living differential models typically use a price level index built up from a representative market basket of goods and services such as housing, food, transportation, health services, recreation, education, and entertainment.  Since housing cost is frequently a large portion of expenditures, it makes sense to address the specifics of the housing environment (e.g., rent/own, square footage, detached single family/duplex, etc.).  Many free, web-based COL differential models have underlying (or unknown) assumptions about the housing component.  

 

Accuracy of COL differential estimates is improved by the ability to customize the housing parameter.  This becomes apparent in analyzing relocation from South Bend, IN to Washington, DC.  Using a specific median estimate of the cost of a 2,200 sq. foot home in the University area of South Bend to compare with the Adams-Morgan neighborhood of Washington, DC produces a more accurate differential than using an average or median home price calculated from a variety of housing stock in the aggregate MSAs of South Bend–Mishawaka, IN and Washington-Arlington–Alexandria, DC–VA–MD–WV.

 

There is an easy way to keep the two measures clear: COL is a snapshot of prices in each location, while the CPI is the moving picture of prices in one location.

See Two City Comparison - Background for more information.