How worried should be about inflation? How concerned should we be about rising costs in higher education? According to congressman Russ Carnahan, “Congress has not raised the minimum wage since 1997, and it is now at its lowest level in 50 years adjusted for inflation” (Russ Carnahan). Concomitantly critics point out that the schools are raising tuition at rates exceeding inflation (Weisbrod et. al, 2011). While battling inflation and calming concerns about their fiscal management, college and universities are ubiquitously expected to manage capitals and operations and remain within tightening budgets. The Higher Education Price Index, or HEPI, is one instrument they may find useful in combatting inflation. This particular inflation index is made with higher education in mind, a custom-tailored indicator of cost changes for colleges and universities (Commonfund, 2011).
The Higher Education Price Index (HEPI) serves to guide, point out, or otherwise facilitate reference for the persistent increase in the level of prices in various categories affecting higher education costs. The Commonfund Institute disseminates the Index free of charge to educational institutions each year. Commonfund Institute does not generate the figures used, but HEPI is constructed from figures distributed by government and economic agencies. Research Associates of Washington, D.C. produced HEPI until 2005 when Commonfund Institute took over management responsibility for the Index. Unlike the Consumer Price Index, “HEPI is an inflation index designed specifically to track the main cost drivers in higher education,” according to the Commonfund website.
Since fiscal year 2002, HEPI has been based on a regression formula. Regression analyses are widely used for prediction and forecasting, and HEPI is used primarily to project future budget increases essential for maintaining purchasing power. It measures price levels and compares the year’s index value with that of 1983’s to reflect relative change. HEPI is actually considered a more accurate indicator of cost changes for colleges and universities than the Consumer Price Index (CPI). There are eight cost factors that contribute to the HEPI regression calculation: faculty salaries, administrative salaries, clerical salaries, service employee salaries, fringe benefits, miscellaneous services, supplies and materials, and utilities. On the other hand, the CPI includes food and beverage, housing, apparel and other goods and services that consumers buy for day-to-day living. (Commonfund, 2011)
The components that are most heavily weighted are faculty salaries, clerical salaries, and fringe benefits. The sensitivity analysis in figure number five of the HEPI for fiscal year 2011 shows a five percent increase in faculty salaries has the effect of increasing HEPI by 180 basis points if other components are kept constant (Commonfund, 2011). Although there was a five percent increase in miscellaneous service as well, it would only...