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

On Sept. 12, 2023, the U.S. Census Bureau will release a new report comparing estimates of median income and earnings between 2021 and 2022 and historical income and earnings dating back to 1967. The report, Income in the United States: 2022, is based on information collected in the 2023 and earlier Current Population Survey Annual Social and Economic Supplements (CPS ASEC) conducted by the Census Bureau.

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. Starting this report year, the Census Bureau will use the Chained Consumer Price Index for All Urban Consumer (C-CPI-U), produced by the Bureau of Labor Statistics (BLS), to inflation adjust income estimates from 2000 onward. In prior reports, the Census Bureau used the Consumer Price Index for all Urban Consumers Retroactive Series (R-CPI-U-RS), also produced by the BLS (formerly known as the Consumer Price Index Research Series [CPI-U-RS]) to adjust historical income estimates for inflation. The agency will continue to use the R-CPI-U-RS to adjust income estimates from before 2000. For more information about the decision to begin using the C-CPI-U, which follows a recommendation from an Interagency Technical Working Group on Consumer Inflation Measures and a multiyear period of public engagement, visit <www.census.gov/topics/income-poverty/income/guidance/alternative-inflation.html>.

According to the C-CPI-U, prices increased by 7.8% between 2021 and 2022. This was the largest annual increase in the cost-of-living adjustment applied by the Census Bureau since 1981.

Inflation abated in 2023. Over the first seven months of 2022, consumer prices rose 2.9% according to the C-CPI-U. Between July 2022 and July 2023, inflation was 3.2%.

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 falling inflation rate in 2023. 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 2021 was $70,780. In real terms, meaning adjusted to 2022 dollars, median income in 2021 was $76,330. The difference (7.8%) reflects the inflation rate between 2021 and 2022 according to the C-CPI-U. When the Census Bureau releases income and earnings statistics for 2022, the estimated change in income and earnings between 2021 and 2022 will compare the 2022 nominal estimates to the real 2021 estimates (adjusted to 2022 dollars). The difference between the two sets of estimates (both in 2022 dollars) will reflect any change in real income and earnings between the two years.

Check out <www.census.gov/topics/income-poverty/income/guidance/alternative-inflation.html> for more information about why the Census Bureau decided to begin using the C-CPI-U,  the relative merits of alternative inflation indexes and implications for the CPS ASEC’s historical estimates of income and earnings.