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April 16, 1946. Mr. Earl IS. Macintosh, c/o Weaver Brothers, Washington Building, Washington, D. C. Dec.r Sari: In accordance with your telephone requost, I am enclosing herewith two netnoranoa - wTne B,L.S, Consider Price I.udex*1 on the coft or living and "The B.L.S, i^olesale Price Index* vn ahoXesale orice ciata. Sincerelv yours. THE B.L*S. WHOLESALE PRICE IKDEX The Bureau describes this index in its current publications as followsi The Bureau of Labor Statistics* wholesale price data, for the most part* represent prices in primary markets. In general* the prices are those charged by manufacturers or producers or are those prevailing on commodity exchanges. The monthly index is calculated from a monthly average of one-daya-week prices* The wholesale price index measures average changes in the prices of a uniform group of commodities weighted according to the quantities marketed in the years 1929 to 1931* The accompanying table shows the relative importance of the major groups of the wholesale price index in the 1926 base period and the changes shown by these groups and the total index from 1939 to the latest month for whioh data are available — February 19b&» The attached chart shows the course of the index and two of its principal components for the period since 19X5* The Bureau also compiles weekly indexes from whioh it is possible to estimate that the index for the current month probably will be about 2 per cent higher than in February and about h per oent higher than at the end of the war* The Bureau also publishes indexes for about 50 subgroups of commodities and several economic classes like raw materials and manufactured goods* Nearly 900 price series are used in constructing the wholesale price index* During the;war period wholesale price series for a number of fabricated products were no longer available on a comparable basis and the Bureau has carried the quotations for these products unchanged. It is planned to reintroduce actual changes for these series as soon as possible into the index* 5"he coverage of the index is rather uneven especially for new products and for such products as women*s olothing and machinery which are difficult to price even in peacetime. Probably a larger proportion of the price series in the wholesale price index is nominal than the price series used to compile the consumer price index* It appears certain that the wartime increases in wholesale prloes for most gro ps of Industrial commodities are understated by the indexes published by the Bureau* On the other hand* prices of farm products and foods have shown much larger rises during the war than prices of industrial commodities. Since the Bureau's index probably assigns heavier weights to agricultural commodities than they should receive* the total wholesale price index probably does not understate the wartime rise in wholesale prices as muoh as the understatement of the industrial price rises would indicate* c An important distinction between the wholesale price index and the consumer prioe index is that the former covers only commodities, both for producer and consumer use* while the latter covers both goods and services, but only those purchased by consumers. 0 I I B.L.S. WHOLESALE PRICE INDEX 1926 = 100 1939 > Weight* average 19U6 Feb. Peroent inorease 100 77.1 107.7 ko 17 65.3 130.8 100 19 70.4 107.8 0 Hi 81.3 101.3 3 95.6 119.6 25 Textiles 10 69.7 102.2 at Fuel and lighting » 73.1 85.1 16 Metals 16 94J+ 106.6 Building 6 90.5 120.9 II Hi Chemicals and drugs 2 76.0 95.9 26 Hous•furnishings J 86.3 106.5 m Miscellaneous 9 74.8 95.6 26 Total < Farm pro duets Foods Other products, total Hides and leather Relative importance of groups in 1926 base period. o o WHOLESALE PRICES BUREAU Of LABOR STATISTICS INOCXCS. i W ( • >OO PEH CCNT MONTHLY 180 180 % 160 • 160 • 140 140 fp 120 I H /v m A^ 1 100 f 0 V 80 K~ 1914 . — — * ^ , —TUT* pp / 60 m •— . / 40 120 **~**i — f 80 "—» \ COMMOOrTESy VH/ FARM 60 v ——. 40 • 1916 1918 1920 1922 1924 1926 1928 1930 1932 100 1934 1936 1938 1940 1942 1944 1946 h c THE B.L.S* COKSUMEH PRICE INDEX The Bureau describes this index in its current publications as follows: The "consumers* prioe index for moderate-income families in large cities," formerly known as the "oost of living index," measures average changes in retail prices of selected goods, rents and services, weighted by quantities bought by families of wage earners and moderate-inoome workers in large eities in I93I4-56. The item* priced for the index constituted about 70 per cent of the expenditures of city families whose incomes averaged $l52k in 195U-36. The index only partially shows the wartime effects of changes in quality, availability of consumer goods, etc. The President9! Committee on the Cost of Living has estimated that sueh faotors, together with certain others not fully measured by the index, would add a maximum of 3 to I4. points to the index for large eities between January 19*4 and Septenber 19UJ.. If small eities were included in the national average, another l/2 point would be added* If account is also taken of continued deterioration of quality and disappearance of low-priced merchandise between September IShk and September 19^4-5* the over-all adjustment for the period January 19Ul to September 19^5 would total approximately 5 points* As merchandise of prewar quality and specifications comes baok into the markets and the Bureau is able regularly to price it again, this adjustment factor will gradually decrease and finally disappear* The accompanying table shows the relative importance in the 1935-39 base period of the groups of items separately published* Indexes for these groups are based on prioes of about 200 goods and services and in addition rental rates are collected for a large number of dwelling units in eaeh of the cities surveyed* The table also shows the indexes for 1959 and the latest date available — February I9U6 — and the advances recorded for that period* The total index for April is likely to be a point or two higher than la February* The course of the index and of its major components is shown on the attached chart for the periods from I9II4. to 1922 and sinoe 1939* The major part of the wartime rise in the cost of living occurred from the beginning of 19^1 to the end of 19^3 and was used in the application of wage rate controls. As a result the changes shown by the index during that period were subject to considerable study* The Bureau1s index advanced 23•!» per sent from January 19^1 to December 19U3 while studies made jointly by the A.F* of L* and the - 2 C,I,O. placed the rite at 1+J-.5 VQr cent. The President's Committee concluded that an allowance of J or i| points should be made for changes not reflected in the Bureau's index* The Bureau made special efforts to meet fehe unusual problems of price measurement in wartime and developed new techniques to take care of a number of special wartime problems. Ifoat users of the index, however, regard the wartime rise in prices to be understated by the index* It should be recognised th&t this index is a aeasure of average changes in prices paid by consumers for a uniform list of goods and services and not a measure of aggregate changes in the cost of living, including changes in living standards* While allowances are wade for no naval 1 ability cf items that aake up the index, no allowance is na.de currently for shifts in the choices of consumers as their Incomes change* , f. B . U S . CONSUMER PRICE INDEX 1935-39 • 100 1939 Percent increase aTerage 1946 Feb. 100 99.4 129 *h 30 Food 35 95.2 139.6 *r Clothing 11 100.5 149.9 k9 ' Housefurniahings k 101.3 lhd.h 47 Fuel and light 7 99.0 111.0 12 19 104.3 108.3** 100.7 125.1 Weight* All items Rants Miscellaneous * Relative importance of groups in the 1935*39 base period. ** Latest month available for rents is December 1945* k n o COST OF LIVING BUREAU OF LABOR STATISTICS INDEXES. 1935 - 3 9 - 100 QUARTERLY THROUGH SEPTEMBER 1940: MONTHLY OCTOBER 1940PER CENT 200 ALL ITEMS AMD FOODS, MONTHLY) CL0TMIN6 AND « € » T , SELECTED DATES - - - - 180 160 cLOTH ING 140 *• - /ALL & / f t ! FOODS ITEMS RENT - - 1914 1916 1918 1920 1922 1940 1942 1944 1946 • WEAVER BROS • INC ors MORTGAGE LOAN CORRESPONDENT METROPOLITAN LIFE INSURANCE COMPANY WASHINGTON, D.C. WASHINGTON BUILDING TELEPHONE DISTRICT 8300 April 17, 1946 Mr, Marriner Eccles Chairman Board of Governors Federal Reserve System Washington 25, D. C. Dear Marriner: I wish to thank you for your letter of April 16th in which you inclosed two memoranda, "The B.L,S» Consumer Price Index" and "The B.L.5. Wholesale Price Index". These will be very helpful to me in my present lease problem. I do appreciate your courtesy and I hope that your secretary was able to find an apartment* However, if I can be of any further service to you, please command me. With kindest personal regards. Very t Mackintosh EMM: am