Skip Navigation

Note 2: Finance (2012)

Using the Consumer Price Index (CPI) to Adjust for Inflation

The Consumer Price Index (CPI) represents changes in the prices of all goods and services purchased for consumption by households. Indexes vary for specific areas or regions, periods of time, major groups of consumer expenditures, and population groups. The CPI reflects spending patterns for two population groups: (1) all urban consumers and urban wage earners and (2) clerical workers. The all-urban consumer group represents about 87 percent of the total U.S. population.

CPIs are calculated for both the calendar year and the school year using the U.S. All Items CPI for All Urban Consumers (CPI-U). The calendar year CPI is the same as the annual CPI-U. The school year CPI is calculated by adding the monthly CPI-U figures, beginning with July of the first year and ending with June of the following year, and then dividing that figure by 12. Data for the CPI-U are available on the Bureau of Labor Statistics (BLS) website ( Also, figures for both the calendar year CPI and the school year CPI can be obtained from the Digest of Education Statistics 2011 (NCES 2012-001), an annual publication of the National Center for Education Statistics (NCES).

Although the CPI has many uses, its principal function in The Condition of Education is to convert monetary figures (salaries, expenditures, income, etc.) into inflationadjusted dollars to allow for comparisons over time.

The reader should be aware that there are alternative price indexes to the CPI that could be used to make these adjustments. These alternative adjustments might produce findings that differ from the ones presented here. For more detailed information on how the CPI is calculated or on the other types of price indexes, go to the BLS website (

Classifications of Expenditures for Public Elementary and Secondary Schools

Total expenditures for elementary and secondary education includes all expenditures allocable to per student costs. The three major categories of total expenditures are current expenditures (all current expenditures for regular school programs), capital outlay, and interest on debt. Total expenditures includes expenditures on education by other agencies or equivalent institutions (e.g., the Department of Health and Human Services and the Department of Agriculture), but excludes "Other current expenditures" such as community services, private school programs, adult education, and other programs not allocable to expenditures per student at public schools.

Current expenditures includes expenditures for the day-to-day operation of schools and school districts. Seven subfunctions make up these current expenditures: instruction, administration, student and staff support, operation and maintenance, transportation, food services, and enterprise operations. Thus, current expenditures includes items such as salaries for school personnel, benefits, supplies, purchased services, student transportation, schoolbooks and materials, and energy costs.

Current expenditures and each of its seven subfunctions can be further broken down by the object of the expenditure: salaries, employee benefits, purchased services, supplies, tuition, and other.

Capital outlay includes direct expenditures for construction of buildings, roads, and other improvements and for purchases of equipment, land, and existing structures. Includes amounts for additions, replacements, and major alterations to fixed works and structures; the initial installation or extension of service systems and other built-in equipment; and site improvement. The category also encompasses architectural and engineering services, including the development of blueprints. Interest on debt includes expenditures for long-term debt service interest payments (i.e., those longer than 1 year).

Classifications of Revenue for Public Elementary and Secondary Schools

Public school revenue is classified by source (federal, state, or local). Revenue from federal sources includes direct grants-in-aid to schools or agencies, funds distributed through a state or intermediate agency, and revenue in lieu of taxes to compensate a school district for nontaxable federal institutions within a district's boundary. Revenue from state sources includes both direct funds from state governments and revenue in lieu of taxation. Revenue from local sources includes revenue from such sources as local property and nonproperty taxes, investments, and revenue from student activities, textbook sales, transportation and tuition fees, and food services. Intermediate revenue comes from sources that are not local or state education agencies, but that are at an intermediate level between local and state education agencies and possess independent fundraising capability— for example, county or municipal agencies. Intermediate revenue is included in local revenue totals.

The Variation in Expenditures per Student and the Theil coefficient

The Theil coefficient is used as a measure of the variation in expenditures per pupil in regular public elementary and secondary schools in the United States. A comparison of the values of Theil coefficients for groups within a set (i.e., districts within a state) will indicate relative dispersion and any variations that may exist among them.

The Theil coefficient has a convenient property when the individual units of observation (e.g., school districts) can be aggregated into subgroups (e.g., states): this property allows the total variation to be decomposed into a measure of the variation within the subgroups and a measure of the variation between the subgroups. Hence, in the examination of the variation in instructional expenditures in the United States, the national variation can be decomposed into measures of between-state and within-state variation. The between-state and within-state components indicate whether the national variation in instruction expenditures per student is primarily due to differences in expenditures between states or within states. The Theil coefficient can range from zero, indicating no variation, to a maximum possible value of 1.0.

The between-state Theil coefficient, TB, equals

equation for the between-state Theil coefficient

where Pk is the enrollment in state k, Xk is the studentweighted mean expenditure per student in state k, and X is the student-weighted mean expenditure per student for the country.

The within-state Theil coefficient, Tw, equals

equation for the within-state Theil coefficient

where Tk is the Theil coefficient for state k. Tk equals

equation for the state Theil coefficient

where Pjk is the enrollment of district j in state k and Xjk is the mean expenditure per student of district j in state k.

The national Theil coefficient, T, is

equation for the national Theil coefficient

Classifications of Expenditures for International Comparisons

International finance data include data on public and private expenditures for instructional and noninstructional educational institutions. Instructional educational institutions are educational institutions that directly provide instructional programs (i.e., teaching) to individuals in an organized group setting or through distance education. Business enterprises or other institutions that provide short-term courses of training or instruction to individuals on a "one-to-one" basis are not included. Noninstructional educational institutions are educational institutions that provide administrative, advisory, or professional services to other educational institutions, although they do not enroll students themselves. Examples include national, state, and provincial bodies in the private sector; organizations that provide education-related services, such as vocational and psychological counseling; and educational research institutions.

Public expenditures corresponds to the nonrepayablecurrent and capital expenditures of all levels of the government directly related to education. Expenditures that are not directly related to education (e.g., culture, sports, youth activities) are, in principle, not included. Expenditures on education by other ministries or equivalent institutions (e.g., Health and Agriculture) are included. Public subsidies for students' living expenses are excluded to ensure international comparability of the data.

Private expenditures refers to expenditures funded by private sources (i.e., households and other private entities). "Households" means students and their families. "Other private entities" includes private business firms and nonprofit organizations, including religious organizations, charitable organizations, and business and labor associations. Private expenditures are composed of school fees, the cost of materials (such as textbooks and teaching equipment), transportation costs (if organized by the school), the cost of meals (if provided by the school), boarding fees, and expenditures by employers on initial vocational training.

Current expenditures includes final consumption expenditures (e.g., compensation of employees, consumption of intermediate goods and services,consumption of fixed capital, and military expenditures); property income paid; subsidies; and other current transfers paid.

Capital expenditures includes spending to acquire and improve fixed capital assets, land, intangible assets, government stocks, and nonmilitary, nonfinancial assets, as well as spending to finance net capital transfers.

Return to Supplemental Notes Index