Economists show they have a sense of humor when they put decimals in their forecasts. We might apply the same quip to their way of quoting retrospective measures of economic activity. For example, economists reported last week that, based on data released on Tuesday by the Bureau of Labor Statistics, the consumer price index was up 1.8% in June from the same month a year ago.

That figure was calculated from price quotations of 71,000 goods and services sold in different parts of the U.S., supplemented by voluminous data on monthly sums paid by renters of apartments and houses. We are thus asked to believe that all those numbers could be gathered without any reporting error, then weighted by surveys of consumer spending—as though all consumers have the same spending patterns—and then boiled down to a rise of 1.8%.

Even without decimal places, long-run measures of the rise in the consumer price index can also look ludicrous. The main problem with measuring changes in the CPI over decades is that the key items consumers buy can change radically over time, so that we run the danger of almost literally comparing apples with oranges.

In his classic work The Making of Index Numbers, celebrated economist Irving Fisher made the fantastic claim that an index number could be designed with such precision that its margin of error "probably seldom reaches one part in 800, or...less than three ounces on a man's weight." Fisher might have been right about the precision of his instrument, but he apparently forgot about the gross inconsistencies of the items it was supposed to measure, at least over time. Fisher wrote those words in 1922, years before the CPI included automobiles (1935), air conditioners (1964), or cellphones (1998).

As though that weren't enough of a problem, the automobile we drive today is rather different from the one we drove in 1935, or even the one we drove in 1965. The personal computers we buy have changed even more rapidly in quality, along with the TVs. To price a 50-inch plasma TV as though it were no different from a 20-inch black-and-white would offend common sense.

WITH ALL THAT SAID, however, the CPI does have its uses.

I counsel against using it to measure, for example, the degree to which real household income has increased since 1970. Instead of adjusting nominal income over time by the CPI over time, it's more instructive to look past the veil of money and prices and simply compare the actual basket of goods and services the typical household could afford in 1970 with the one it can afford today.

But on a year-to-year basis, the CPI serves well enough as a gross approximation, fairly accurately informing us that price inflation has been relatively modest. There are those who complain that modifications introduced into the index in the late 1990s have caused it to understate price inflation. I happen to believe that most of these modifications make sense. For those who disagree, however, there is ample empirical data available on the old CPI to measure the extent of the difference.

The "upward bias" comes to at most 1.3 percentage points per year. Add that to 1.8% and you get 3.1%, still relatively modest in historic terms. Of course, I should report those numbers with the standard image of a smiley face.