EXPERIMENTAL CPI DUE OUT THIS MONTH.

Byline: Martin Crutsinger Associated Press 

The Bureau of Labor Statistics will begin publishing April 22 an experimental price gauge aimed at correcting one of the bias problems highlighted in the Consumer Price Index.

In announcing the decision Thursday, the agency estimated that the experimental index could reduce the CPI by as much as 0.25 percentage point annually. BLS officials said any decision on replacing the current CPI with the new measurement would not be made until the end of this year and would not go into effect until January 1999.

Such a time schedule would be too late to help negotiators this year trying to achieve a balanced budget. But BLS officials told reporters at a briefing Thursday that there was no way to accelerate that timetable given the complexity of the task.

The CPI is used to make annual cost-of-living adjustments for Social Security and other retirement programs and to adjust the income tax to remove the impact of inflation.

A panel of prominent economists headed by Michael Boskin of Stanford University released a report in December saying the current CPI is overstating inflation by 1.1 percentage point annually.

Lowering the CPI by that amount would mean less of an increase in pension benefits and more taxes paid. Over 12 years, these changes would translate into $1 trillion in budget savings, the panel estimated.

The experimental CPI will seek to address one of the issues raised by the Boskin commission known as substitution bias. For example, if the price of iceberg lettuce jumps sharply compared to Romaine lettuce, the current CPI, which is based on a fixed-market basket of items each month, makes no adjustment for the fact that consumers might buy less iceberg and more Romaine.

The experimental CPI, however, will use a formula to average prices of the two types of lettuce that will assume consumers will purchase less of an item if its price increases and more of a cheaper item in the same category.

However, this formula, known as a geometric mean, will not be used to try to find substitutions between categories, such as a consumer buying more chicken when the price of beef rises.

BLS officials said they will monitor price changes in the experimental CPI until the end of the year and then decide what types of categories would be appropriate for use of the new averaging process and which should be unchanged. There are currently 9,108 categories of products and services for which prices are obtained each month.

Because of the length of time it takes to make changes in the way the CPI is compiled, Federal Reserve Chairman Alan Greenspan proposed that a group of prominent economists survey the CPI annually and recommend to Congress an adjustment figure that would take into account the amount of inflation bias remaining.