The Index

The CPI-U is published monthly by the Bureau of Labor Statistics of the U.S. Department of Labor. It is a measure of the average change in consumer prices over time for a fixed market basket of goods and services, including food, clothing, shelter, fuels, transportation, charges for doctors’ and dentists’ services, and drugs.

In calculating the index, price changes for the various items are averaged together with weights that represent their importance in the spending of urban households in the United States. The contents of the market basket of goods and services and the weights assigned to the various items are updated periodically to take into account changes in consumer expenditure patterns.

The CPI-U is expressed in relative terms in relation to a time base reference period for which the level is set at 100. For example, if the CPI-U for the 1982-84 reference period is 100, an increase of 16.5% from that period would be shown as 116.5. The CPI-U for a particular month is released and published during the following month.

The Bureau of Labor Statistics of the U.S. Department of Labor is the primary source of the monthly CPI-U numbers. The CPI-U numbers are also widely available on the major financial wire services. Treasury issues a press release monthly that will provide the nonseasonally adjusted CPI-U for each of the prior three months. Treasury also provides this information through media such as the Internet and automated facsimile systems. Treasury maintains the records of this information for reference going forward, which will be available to the public. Treasury also publishes on an initial basis the daily Reference CPI-Us and the daily index ratios for outstanding inflation-protected securities.

Revisions to a previously released CPI-U will not be used in calculations of inflation adjustments on outstanding Treasury inflation-protected securities. The base reference period for a particular inflation-protected security will be provided in the Treasury offering announcement for that security. If the CPI-U is rebased to a different year, Treasury will continue to use the old base reference period for outstanding securities. If, while an inflation-protected security is outstanding, the CPI-U is discontinued or, in the judgment of the Secretary of the Treasury (i) fundamentally altered in a manner materially adverse to the interests of an investor, or (ii) altered by legislation or Executive Order in a manner materially adverse to the interests of an investor, Treasury will substitute an appropriate alternative index after consultation with the Bureau of Labor Statistics.

The inflation-adjusted principal amount of TIPS can be calculated daily by multiplying the stated principal amount at issuance, or par amount, by an index ratio. To calculate the inflation-adjusted principal amount for a particular valuation date, the par amount is multiplied by an index ratio applicable to that valuation date. The index ratio for any valuation date is the ratio of the Reference CPI-U applicable to such date to the Reference CPI-U applicable to the original issue date of the security.

The Reference CPI-U for any valuation date incorporates a three-month lag. Thus, the Reference CPI-U for the first day of any calendar month is the CPI-U published for the third preceding calendar month. For example, the Reference CPI-U applicable to April 1 in any calendar year is the CPI-U published for January. The Reference CPI-U for any other day of the month is determined by a linear interpolation between the Reference CPI-U applicable to the first day of the month in which such a day falls (in the example, January) and the Reference CPI-U applicable to the first day of the month immediately following (in the example, February). Thus, in the example, the Reference CPI-U for any day of April, after April 1, will be determined by a linear interpolation between the Reference CPI-U for April (i.e., the CPI-U published for January) and the Reference CPI-U for May (i.e., the CPI-U published for February).