## The Consumer Price Index in the Florida Property Tax System

The consumer price index (CPI) is the most widely used measure of consumer price changes. The CPI measures the average change over time in the prices urban consumers pay for goods and services. The
Bureau of Labor Statistics (BLS) of the U.S. Department of Labor collects the CPI price information and calculates the CPI statistics.

## Questions about the Consumer Price Index (CPI)

### What are the CPI-U and the CPI-W?

BLS measures the CPI for two population groups:

- All Urban Consumers (CPI-U)
- Urban Wage and Clerical Workers (CPI-W)

The CPI-U measures consumer price inflation for all U.S. residents of urban areas, which accounts for about 87 percent of the U.S. population. The CPI-W measures consumer price inflation for a subset of the CPI-U population: residents of urban areas who live in households that receive more than half of their income from clerical or wage occupations and have one earner employed for at least 37 weeks during the previous 12 months. The CPI-W covers about 32 percent of the U.S. population. The CPI-U is the most commonly used index because it has the broadest population coverage.

### How is the CPI used for the “Save Our Homes” assessment limitation cap?

The CPI-U is used in the calculation of the “Save Our Homes” assessment limitation cap.
Section 193.155(1), Florida Statutes, specifically states that any change resulting from the annual reassessment of homestead property "shall not exceed the lower of the following:

"(a) Three percent of the assessed value of the property for the prior year; or

"(b) The percentage change in the Consumer Price Index for All Urban Consumers [CPI-U], U.S. City Average, all items 1967=100, or successor reports for the preceding calendar year as initially reported by the United States Department of Labor, Bureau of Labor Statistics."

To compute the rate of inflation between two time periods used in the “Save Our Homes” assessment limitation cap, calculate the percent change in the appropriate CPI index from the first period to the second period. The following example computes the change in the CPI-U from December 2009 to December 2010:

December 2009 CPI-U index |
215.949 |

December 2010 CPI-U index |
219.179 |

Change in index |
3.229 |

Compute percent change |
(3.229 / 215.949) * 100 = 1.495 |

Percent change |
1.5 percent |

### How is the CPI used for tax exemptions that require an annual adjustment to income limitations?

Three property tax exemptions require an annual adjustment to the income limitation requirement: the additional homestead exemption for persons 65 and older, the exemption for totally and permanently disabled persons, and the exemption for property used by nonprofit homes for the aged.

Sections 196.075, 196.101, and 196.1975, Florida Statutes, require the annual adjustment of the income limitation for these exemptions on January 1 by the percentage change in the average cost-of-living index from January 1 through December 31 of the immediate prior year compared with the same period for the year prior to that. The index is the average of the monthly consumer price index figures for the stated 12-month period, relative to the United States as a whole, issued by the United States Department of Labor.

To compute the percent change in the average annual rate of inflation from year to year, take the appropriate CPI index for each month of the calendar year and calculate the simple 12-month average. Next, calculate the percent change in the annual average CPI index from one year to the next. The following example computes the percent change in the average annual CPI-U from 2009 to 2010.

Average annual 2009 CPI-U index |
214.537 |

Average annual 2010 CPI-U index |
218.056 |

Change in index |
3.519 |

Compute percent change |
(3.519 / 214.537) * 100 = 1.640 |

Percent change |
1.6 percent |

### What is the difference between these CPI calculations?

According to the BLS, from a statistical perspective, each of these types of indexes has its advantages. A 12-month percent change from December to December is a more recent estimate of price change than an annual average percent change. Said another way, the December-to-December percent change is the most recent 12-month percent change in a year, while the annual average percent change reflects the change in the average index for all 12 months of one year to the average index for all 12 months the next year.