HEPI and CPI are both useful tools for measuring inflation – but they have to be used appropriately:
HEPI is useful as an overall measure of inflation affecting the higher education sector, just as consumers everywhere use the national Consumer Price Index as a general measure of family purchasing power.
In an educational context, the CPI is most properly used to adjust faculty and other college and university personnel salaries to dollars of constant purchasing power.
HEPI measures the average relative level in the prices of a fixed market basket of goods and services purchased by colleges and universities through current-fund educational and general expenditures, excluding expenditures for research. Educational and general expenditures include the functions of instruction and departmental research, extension and public services, educational programs such as workshops and instructional institutes supported by sponsors outside the institution, student services, general administration and expenses, staff benefits, libraries, and operation and maintenance of the physical plant. Note that sponsored research, sales and services of education departments, and auxiliary enterprises are not priced by HEPI.
The prices measured are national average prices, which means that HEPI does not account for any departure from available state-of-the-art services and typical quality goods normally employed by colleges and universities. It follows that a single national price index, such as HEPI, has value in reporting prices for average quality items.
HEPI has five critical characteristics that should be kept in mind when using it:
HEPI measures general inflation affecting all colleges and universities in the sector,not any specific institution.
In measuring average prices, HEPI reflects the quality of typically employed commodities. Any institutional departure in real expenditure from these averages represents a quality differential.
HEPI measures price changes for a fixed market basket of goods and services, so it does not account for the budgetary needs of institutions to buy more or better items to meet enrollment expansion, quality improvement, and competition.
The market basket has remained fixed over the years, which means that the index assumes a typical budget weighting of, for example, the number of gallons of fuel oil versus the number of professors.
Specialized indices for specific geographic regions and types of institution are included in the annual HEPI Report, but because the data series for which specialized information is available account for less than half of the factor weightings in the HEPI equation, they are of necessity approximations and should be used accordingly.
The Consumer Price Index for All Urban Consumers (CPI), compiled by the U.S. Labor Department’s Bureau of Labor Statistics (BLS), is a measure of the average change in prices over time in a fixed market basket of goods and services that people buy for day-to-day living. The items priced include food, clothing, shelter and fuels, transportation fares, charges for doctors’ and dentists’ services, and drugs. Prices are collected in 85 urban areas across the country from about 57,000 housing units and approximately 19,000 retail establishments. All taxes directly associated with the purchase and use of the items are included in the index. The CPI covers approximately 80% of the total population. Separate indices are published by the BLS by region and for 27 local areas.
Technically, the CPI is properly used only to adjust the various incomes and allotments, and collective typical expenditures of American workers to establish general consumption purchasing power. Misuse of the index to calculate inflation for other categories of expenditure is misleading in that, at the least, it conveys a false impression of accuracy.
In an article in Trusteeship magazine, Commonfund Institute’s Executive Director, John Griswold, explains the difference between HEPI and CPI and shows how educational institutions can use them to plan for the future.