Issue Briefs

Publication Number: IB99-1 March 5, 1999

Inflation Indices

Discussion of College and University Price Indexes

There are two regularly used price indexes for higher education, Higher Education Price Index (HEPI) and Research and Development Price Index (R&DPI). The two are principally distinguished by type of expenditure. HEPI measures prices of a fixed basket of goods and services purchased through current fund educational and general expenditures (E&G). Sponsored research, sales and services, and auxiliary enterprises are not priced by HEPI. One component excluded from HEPI, sponsored research, is priced by R&DPI. R&DI measures prices of goods and services purchased as current direct expenditures for sponsored research. Indirect costs for research are excluded as are major expenditures for equipment and furnishings, and separately budgeted physical plant investments.

HEPI

The HEPI basket of goods and services was established in 1972 based on national budget data collected by NCES. No subsequent data have been collected regarding expenditures by object classification. The relative costs of these goods and services has changed, but the basket itself has been held constant. In addition, the index reflects average national prices for state-of-the-art services and typical quality goods. As described in Inflation Measures for Schools, Colleges and Libraries, five critical dimensions of HEPI that should be kept in mind are:

• The index reflects general inflation affecting all colleges and universities, not specific institutional, regional or institutional type variations.
• It reflects average quality commodities. Institutional decisions to vary from this average will necessarily affect the accuracy of HEPI for individual colleges and universities.
• Because the basket is fixed, and has been fixed for over 25 years, variance in relative weights experienced by individual institutions are not measured. In fact, any generalized change in the delivery of education is not reflected.
• As long as the relationships among components are constant, the index is accurate. Any change in unit ratios (i.e., library expenditures per student, students per faculty) are not considered. Efforts to create local indexes would have to consider differences in item quality.

Overall, the proportional amount of the two HEPI cost component divisions in 1990 were personnel (79%) and services, supplies and equipment (21%). The largest single HEPI component was faculty salaries at about 37% of HEPI in 1990. Sources for the various components are as follows:

R&DPI

The Research and Development Price Index is designed to assess the price of immediate research activities. Indirect costs, and major expenditures for scientific equipment or physical plant investments are excluded. Expenditures included are salaries and wages, contracted services, supplies, and equipment. The large majority of components are shared by HEPI and R&DPI, but there are unique features. R&DPI does not include the utilities sub-index and either substitutes or augments HEPI with the following unique components: