Estimating a CPI-based regional price parity index for US cities

Abstract

Geographic price differences confound comparisons of economic performance across cities by conflating nominal urban advantages with real differences in well-being. Existing tools only partially address this problem: the Bureau of Economic Analysis publishes a Regional Price Parity (RPP) Index that represents relative price levels in US cities and states, but it is available only annually since 2008 and with a publication lag, limiting its usefulness for historical or high-frequency analysis. To address this measurement gap, we use the Consumer Price Index (CPI) for 29 US cities to construct a CPI-based RPP, enabling consistent comparisons of urban economic performance over time at constant and comparable prices. We exploit standard price-parity properties using publicly available CPI data to estimate CPI-based RPPs at a higher frequency and over longer historical horizons. This results in a CPI-based RPP for any period with published CPI data, as far back as 1913 in some cities to the most recent observations. By separating nominal urban advantages from cost-of-living differences, the index allows researchers to reassess claims about urban well-being, affordability, and the real returns to agglomeration. We demonstrate the index by examining long-run regional price dynamics and comparing real per capita GDP and real per capita personal income across cities at constant and comparable prices.