Perceived overestimation of inflation.   Main article: Boskin Commission

In 1995, the Senate Finance Committee appointed a commission to study CPI's ability to estimate inflation. The CPI commission found in their study that the index overestimated the cost of living by a value between 0.8 to 1.6 percentage points.

If CPI overestimates inflation, then claims that real wages have fallen over time could be unfounded. Additionally, real GDP growth, which is calculated using the CPI, would be severely underestimated. An overestimation of only a few tenths of a percentage point per annum compounds dramatically over time. In the 1970s and 80s the federal government began indexing several transfers and taxes including social security (see above Uses of the CPI). The overestimation of CPI would imply that the increases in these taxes and transfers have been greater than necessary, meaning the government and taxpayers have overpaid for them.

The Commission concluded that more than half of the overestimation was due to slow adjustments in the index to new products or changes in product quality. Because the index weights are only adjusted once every ten years, the CPI does not account for new technologies that are adopted by consumers quickly. For example, by 1996 there were over 47 million cellular phone users in the United States, but the weights for the CPI did not account for this new product until 1998. This new product lowered costs of communication when away from the home. The commission recommended that the BLS update weights more frequently than ten years to prevent new products from causing upward bias in the index.

Additional upward biases were said to come from several sources. Fixed weights do not accommodate consumer substitutions among commodities, such as buying more chicken when the price of beef increases.[4] Because the CPI assumes that people continue to buy beef, it would increase even if people are buying chicken instead. However, this is by design: the CPI measures the change in expenses required for people to maintain the same standard of living.[5] The Commission also found that 99% of all data were collected during the week, although an increasing amount of purchases happen during the weekend. Additional bias was said to stem from changes in retailing that were unaccounted for in the CPI.[6]

 Perceived underestimation of inflation

Some critics believe however, that because of changes to the way that the CPI is calculated, and because energy and food price changes are currently excluded from the Federal Reserve's calculation of "core inflation," that inflation is being dramatically underestimated.[7][8] The second argument is unrelated to the CPI, except insofar as the calculation of CPI is modified in response to a perceived overstatement of inflation.

The Federal Reserve's policy of ignoring food and energy prices when making interest rate decisions is often confused with the Bureau of Labor Statistics' measurement of the CPI. The BLS publishes both a headline CPI which counts food and energy prices, and also a CPI for All Items Less Food and Energy, or "Core" CPI. None of the prominent legislated uses of the CPI excludes food and energy.[9] However, with regards to calculating inflation, the Federal Reserve no longer uses the CPI, preferring to use core PCE instead.

Some critics believe that changes in CPI calculation due to the Boskin Commission have led to dramatic cuts in inflation estimates. They believe that using pre-Boskin methods, which they also think are still used by most other countries, the current U.S. inflation is estimated to be around 7% per year. The BLS maintains that these beliefs are based on misunderstandings of the CPI. For example, the BLS has stated that changes made due to the introduction of the geometric mean formula to account for product substitution (one of the Boskin recommended changes) have lowered the measured rate of inflation by less than 0.3% per year, and the methods now used are commonly employed in the CPIs of developed nations.[10]