This adjustment expresses all of the reported income amounts for a given period (1 year, 3 year, or 5 year) in a comparable manner with regard to purchasing power as of the most recent calendar year in the period. Such an adjustment should not be confused with a current-year estimate. For example, an inflation-adjusted 5-year period median income estimate covering years 2005–2009 is not an estimate of median income for the latest year (2009); instead, it is an estimate of the median of all of the reported income amounts over the 5 years expressed in 2009 dollars.
It is possible that for many applications users may prefer an inflation adjustment to the most recent calendar year to no adjustment at all. For some applications, users may find that an inflation adjustment to the latest year is not adequate. For example, users frequently wish to compare ACS income estimates with those from other household surveys. Yet a 1-year period income estimate from, say, the 2005 ACS that expresses income amounts in constant 2005 dollars for reference periods spanning January 2004 through November 2005 is not comparable to an estimate from a survey, such as the 2006 CPS ASEC, that collects all income amounts for the same fixed reference period of calendar 2005. The reasons are that prices are not income, and incomes may grow faster (or slower) than prices.
Turek, Denmead, and James (2005) illustrate the problems of using price change as a proxy for income change when comparing survey estimates. For 1998—a period of strong economic growth—they estimated that the Census Bureau’s inflation adjustment would make up only 22 percent of the difference between average person total income from a simulated 1998 ACS sample compared with average person total income reported for calendar year 1998. The simulations used the Survey of Income and Program Participation, which collects income on a 1-month or 4-month basis over a multiyear period. The analysis compared income amounts reported by people for the 12 months preceding each month in 1998 unadjusted for inflation (average $17,304 person total income), the same income amounts adjusted for inflation to calendar 1998 (average $17,447), and income amounts reported by the same people for all 12 months of 1998 (average ($17,945). Presumably, the difference between the second and third figures occurs because, on average, people received pay raises or returns on assets between their income reporting period and the end of the calendar year that exceeded the rate of inflation (for example, a big raise in June 1998 for an individual who reported income for June 1997–May 1998).
Many applications, such as HUD’s use of county-level median income to determine eligibility for housing assistance programs, require current-year estimates. The ACS inflation-adjusted period estimates will not be optimal for such applications, given that they represent averages over the period expressed in dollars for the latest year in the period instead of estimates for the latest year. The inability of the inflation adjustments to represent