Using the Consumer Price Index in Forecasting for Small Geographic Areas

The usefulness of the consumer price index (CPI) as a tool for updating and forecasting income and house values in small geographic market areas is explored in this paper. The topic is introduced by briefly discussing the construction of the CPI and its traditional use as an updating index. The accuracy of such employment is examined statistically with data from 191 census tracts in the metropolitan Atlanta area. For the data set examined, use of the CPI for updating both income and house values is associated with significant and systematic error and bias calling into question its usefulness.