So, you are preparing notices of rental increase based on the CPI in the Southern Califonria area. And you are located in Los Angeles; or, San Bernardino. How do you cite the new Inland Empire CPI, or the Los Angeles area CPI for that matter?
Old index - No Longer Exists!
The 2017 and earlier CPI for So. Cal. was this:
"Consumer Price Index for all Urban Consumers for the Los Angeles-Anaheim-Riverside Area (1982-1984 =100), All Items, published by the Bureau of Labor Statistics of the U. S. Department of Labor (CPI-All Urban Consumers)"
[Series Id: CUURA421SA0, CUUSA421SA0; Not Seasonally Adjusted; Series Title: All items in Los Angeles-Riverside-Orange County, CA, all urban consumers, not seasonally adjusted; Area: Los Angeles-Riverside-Orange County, CA; Item: All items; Base Period: 1982-84=100]
NOW WE HAVE TWO NEW INDICES:
(1) LOS ANGELES-LONG BEACH-ANAHEIM
"Consumer Price Index, Los Angeles-Long Beach-Anaheim, All Items, 1982-84=100 base, All Urban Consumers (CPI-U)"
"Consumer Price Index, Los Angeles-Long Beach-Anaheim, All Items, 1982-84=100 base, Wage Earners and Clerical Workers (CPI-W)"
Most leases use the "All Urban Consumers Index" as being the more accurate measure, though on past occasion, the Wage Earner's index has exceeded the Urban Consumers index.
(2) RIVERSIDE-SAN BERNARDINO-ONTARIO
The new Inland Empire index is based on these factors: All items in Riverside-San Bernardino-Ontario, California area, for all urban consumers; not seasonally adjusted; All items; Base Period: DECEMBER 2017=100. This index will be published bi-monthly starting February beginning with a January 2018 index.
"Consumer Price Index, Riverside-San Bernardino-Ontario, All Items, December 2017=100 base, All Urban Consumers (CPI-U)"
"Consumer Price Index, Riverside-San Bernardino-Ontario, All Items, December 2017=100 base, All Urban Consumers (CPI-U), Wage Earners and Clerical Workers (CPI-W)"
The CPI publishes price changes for two population groups. The Consumer Price Index for All Urban Consumers (CPI-U), as the name implies, measures price change for urban consumers. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) measures price change for a narrower population of Americans. A lease should specify how and which indices are used. The BLS says that the CPI-U covers a significantly broader segment of Americans and represents the broadest measure of consumer inflation that BLS produces. Therefore it is typically subject to less sampling error than the CPI-W.
But the larger issue which nags at the problem of keeping abreast with the cost of living is that CPI methodology fails to accurately measure inflation. It simply doesn't. The CPI's method of calculation has been changed through the years to produce results which make politicians look better.
In the following chart we see the pre-1980 official calculations for CPI-U, compared to current (diluted) method. In general terms, methodological shifts in government reporting have depressed reported inflation, dramatically moving the concept of the CPI away from being a reliable measure of changes in the cost of living.
Thus, in drafting COLA escalators, it is best practice to address the government's continuing analytical impotency of cost-of-living statistics which are driven by political self-promotion. We submit that the business owner should adopt a realistic, accurate approach for protecting once robust investments from economic atrophy. Especially where fiduciaries are beneficial owners. Drawing from many agencies and entities, owner's may, likewise, consider CPI plus 1% or 2%. Only by supplementing 100% of CPI with further adjustment can an owner hope to maintain parity. CPI alone is virtually guaranteed to cause rents to fall behind market with concomitant capital loss and deprivation of the reasonable return to which the owner is entitled according to California law.
Terry R. Dowdall, Esq.
[See, Williams, Shadow Government Statistics
Copyright 2003-2017. Shadow Government Statistics, American Business Analytics & Research LLC.]