How Inflation Affects the Census Bureau’s Income and Earnings Estimates

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On Sept. 13, 2022, the U.S. Census Bureau will release income and earnings estimates for 2021, using data from the 2022 Current Population Survey Annual Social and Economic Supplement (CPS ASEC). In the report, Income in the United States: 2021, the Census Bureau will compare estimates of median income and earnings between 2020 and 2021 and present historical income and earnings estimates dating back to 1967.

To account for changes in the cost of living, the Census Bureau adjusts all prior year income and earnings estimates for inflation. There are numerous price indexes available to the Census Bureau to use for this adjustment. The Census Bureau currently uses the Consumer Price Index Retroactive Series for all Urban Consumers All Items (R-CPI-U-RS), produced by the Bureau of Labor Statistics (formerly known as the Consumer Price Index Research Series [CPI-U-RS]).

According to this index, prices increased by 4.7% between 2020 and 2021. This is the largest annual increase in the inflation rate since 1990.

Inflation has increased more rapidly in 2022. Over the first seven months of 2022, inflation rose 5.4%. Between July 2021 and July 2022, inflation increased 8.5%.

Since income estimates released in September reflect annual income in the prior calendar year, the Census Bureau's inflation adjustment does not account for the additional price increases experienced in 2022. Those changes will be reflected in the inflation-adjusted estimates of income released in next year's report.

In nominal terms, meaning unadjusted for inflation, the median income for all U.S. households in 2020 was $68,010. In real terms, meaning adjusted to 2021 dollars, median income in 2020 was $71,186. The difference (4.7%) reflects the inflation rate between 2020 and 2021. When the Census Bureau releases income and earnings statistics for 2021, the estimated change in income and earnings between 2020 and 2021 will compare the 2021 nominal estimates to the real 2020 estimates (adjusted to 2021 dollars). The difference between the adjusted 2020 and unadjusted 2021 estimates reflects the change in real income and earnings between the two years.

As mentioned, the Census Bureau currently uses R-CPI-U-RS. The Census Bureau is considering whether to use price indexes that better account for how households adjust consumption when relative prices change. For more information about the motivation for this potential change, the relative merits of alternative inflation indexes, and implications for the CPS ASEC's historical estimates of income and earnings, visit <www.census.gov/topics/income-poverty/income/guidance/alternative-inflation.html>. The Census Bureau is seeking comments about this proposed change. For more information about how to submit feedback, refer to the Federal Register Notice.