cost of living

cost of living, amount of money needed to buy the goods and services necessary to maintain a specified standard of living. The cost of living is closely tied to rates of inflation and deflation. In estimating such costs, food, clothing, rent, fuel, lighting, and furnishings as well as expenses for communication, education, recreation, transportation, and medical services are generally included. The Consumer Price Index (CPI), a measurement of the cost of living prepared by the U.S. Bureau of Labor Statistics, tracks changes in retail prices of an average "market basket." Changes are compared to prices in a previously selected base year, from which figures the percentage increase or decrease in the cost of living can be calculated. In addition to changes over time, such analyses must also consider regional variations in the cost of living, and the relative weighting of the components of the index must be reappraised periodically. The CPI is based the spending habits of 14,000 households that are considered representative of the U.S. urban and metropolitan population; data collectors collect and compile some 80,000 price quotes monthly. The first attempt to gather data on the cost of living in the United States was made by the Bureau of Labor Statistics in 1890. The dramatic increase in the rate of inflation during the 1970s led to the widespread use of cost-of-living adjustments (COLA) in wage agreements, real estate leases, and such government benefits as social security. These adjustments are often made using the CPI.

See bibliography under standard of living.

The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2012, Columbia University Press. All rights reserved.

More on cost of living from Fact Monster:

  • Consumer Price Index - Consumer Price Index: Consumer Price Index: see cost of living.
  • index number - index number index number, in econometrics, a figure reflecting a change in value or quantity as ...
  • Charles Erwin Wilson - Wilson, Charles Erwin Wilson, Charles Erwin, 1890–1961, American industrialist and cabinet ...
  • Gunnar Myrdal - Myrdal, Gunnar Myrdal, Gunnar , 1898–1987, Swedish economist, sociologist, and public ...
  • living wage - living wage living wage, the hourly wage that, at a minimum, supports a standard of living above ...

See more Encyclopedia articles on: Economics: Terms and Concepts