INFLATION INDEX FOR COLLEGES AND UNIVERSITIES STAYS NEARLY FLAT AT 3.6% IN FISCAL YEAR 2008, UP FROM 3.4% IN FY2007
Data timing difference causes Commonfund Institute’s Higher Education Price Index (HEPI) to understate the effect of recent increases in utilities and supplies; if data from first half of 2008 were used, HEPI would be 4.6%.
WILTON, CT, September 4, 2008 -- Commonfund Institute has released its annual compilation of the Higher Education Price Index (HEPI) for fiscal year 2008, which ended on June 30, 2008. The FY2008 HEPI calculation reveals that the inflation rate for colleges and universities was 3.6%, only 20 basis points above the 3.4% rate reported for FY2007. This compares with an annualized Consumer Price Index (CPI) – calculated using an average of monthly CPI index figures from July to June – of 3.7% for the same period.
In the current environment of higher inflation, particularly in energy and food costs, the FY2008 HEPI figure may appear low. The reason for the anomaly lies in the fact that the index is compiled using only final, rather than preliminary, annual data.
There are eight cost factors that contribute to the HEPI regression calculation. They are: Faculty Salaries, Administrative Salaries, Clerical, Service Employees, Fringe Benefits, Miscellaneous Services, Supplies & Materials and Utilities.
Since its inception in 1983, HEPI has consistently been compiled using annual cost inflation data from official sources for each of the eight factors. Certain data are released on a calendar year basis, while other data are released in different months. For six of the factors, final data through June 30 are available. For Supplies & Materials and Utilities, however, only preliminary data have been available as of June 30 and so, since its inception, HEPI has been compiled using final data from the previous calendar year-end for these two cost factors. In times of high price volatility, this timing difference has sometimes caused HEPI to be overstated – as was the case in FY2006, when the post-Katrina spike in fuel prices was captured but not the subsequent decline – or, as in this year, understated.
Consequently, the substantial increases in Supplies & Materials and Utilities costs in the last six months are not reflected in the FY2008 HEPI index. For example, the Utilities cost factor increased only 0.9% through December 31, 2007, according to the final figure used in calculating HEPI; however, as of June 30, 2008 the preliminary figure for this factor is 13.7%. Similarly, while Supplies & Materials costs increased 4.7% through December 31, the preliminary figure as of June 30 is 10.9%.
The regression equation assigns a different weighting to each cost factor, and therefore a change in one component may influence the final HEPI calculation more than another. Those components that are most heavily weighted are Faculty and Clerical Salaries and Fringe Benefits. Supplies & Materials and Utilities represent the second-lowest and third-lowest weightings, respectively. Taken together, these two cost factors have a weighting of 12.3% in the regression equation that determines the final HEPI. If the two preliminary numbers were used to calculate HEPI, the 2008 HEPI would be 4.6% instead of 3.6%, a significant difference.
Among the other cost factors, while the inflation rate of Faculty Salaries stayed constant at 3.8%, Administrative Salaries’ inflation rate increased from 4.0% to 5.0%. The inflation rates of the other four factors showed a decline. Clerical salaries increased by 3.1% versus 3.6% last year, Service Employee costs increased by 3.2% versus 4.0%, Fringe Benefit inflation slowed to 3.7% from 5.0% and inflation for Miscellaneous Services declined to 3.4% from 4.2%.
HEPI is an inflation index designed specifically for higher education. It is a more accurate indicator of changes in costs for colleges and universities than the Consumer Price Index, as it measures the average relative level of prices in a fixed basket of goods and services purchased by colleges and universities each year through current fund educational and general expenditures, excluding research. It is an essential tool enabling schools to project future budget and funding increases required to maintain real purchasing power and investment.
HEPI has been calculated every year since 1983 and includes inflation data going back to 1961. Since FY2002, HEPI has been based on a regression formula. In 2005, Commonfund Institute assumed responsibility for maintaining HEPI and calculating its annual rate of change.
Commonfund Institute provides monthly forecasts of HEPI for the coming fiscal year, beginning in January of each year, together with other information about the index and its calculation. Please see tables below:
HEPI 2008 Update
HEPI 2008 - Regression analysis of components
HEPI 2008 -By category/Public and Private Institutions
Please visit us at the following link for the most up-to-date information from Commonfund Institute on HEPI: http://www.commonfund.org/Commonfund/CF+Institute/CI_About_HEPI.htm
About Commonfund Institute
Commonfund Institute was founded to house the education and research activities of Commonfund and to provide the entire nonprofit community with investment information and professional development programs. Commonfund Institute is dedicated to the advancement of investment knowledge and the promotion of best practices in financial management. Commonfund Institute provides a wide variety of resources, including conferences, seminars and roundtables on topics such as endowments and treasury management; proprietary and third-party research and publications including the annual Commonfund Benchmarks Study® and the Higher Education Price Index (HEPI); and events such as the annual Commonfund Endowment Institute and the Commonfund Prize for outstanding contribution to endowment investment research. Its broad range of programs and services is designed to serve financial practitioners, fiduciaries and scholars. In addition to the Educational Endowment Report, Commonfund Institute conducts Commonfund Benchmarks Studies of foundations, operating charities and nonprofit healthcare organizations.
About Commonfund
Founded in 1971, Commonfund is devoted to enhancing the financial resources of educational and other nonprofit institutions including endowments, foundations, healthcare and service organizations through superior fund management, investment advice, and treasury operations. Directly or through its subsidiaries, Commonfund Capital, Commonfund Realty, and Commonfund Asset Management Company, Commonfund manages approximately $42 billion for approximately 1,900 nonprofit educational institutions, foundations, healthcare and other nonprofit institutions, representing one of the largest pools of educational endowment and operating funds in the world. In response to the growing needs of nonprofit institutions, Commonfund, together with its subsidiary companion organizations, offers more than 45 different endowment investment programs including funds for the management of short- and intermediate-term operating cash reserves. All securities are distributed through Commonfund Securities, Inc. www.commonfund.org.