summation of the component bias estimates. As reported in US General Accounting Office (2000) , however, changes in CPImethods subsequent to 1996 led the Boskin Commission members to reduce their estimates of total bias. Lacking evidence to the contrary, additivity of biases has been assumed in most such studies. Shapiro and Wilcox (1997b) provide probability distributions and correlations of their component bias estimates, yielding an overall confidence interval for the total bias. Most detailed studies of bias also conclude that the CPI bias is in an upward
The Consumer Price Index Manual: Concepts and Methods contains comprehensive information and explanations on compiling a consumer price index (CPI). The Manual provides an overview of the methods and practices national statistical offices (NSOs) should consider when making decisions on how to deal with the various problems in the compilation of a CPI. The chapters cover many topics. They elaborate on the different practices currently in use, propose alternatives whenever possible, and discuss the advantages and disadvantages of each alternative. The primary purpose of the Manual is to assist countries in producing CPIs that reflect internationally recommended methods and practices.
1.1 Chapter 1 provides a self-contained overview of the uses and the basic steps for compiling the consumer price index (CPI). More than just a summary of the chapters to follow, Chapter 1 guides the reader through the compilation process and highlights best practices that are explained in greater detail in subsequent chapters. The flow of the chapter follows the different steps needed to develop and maintain a CPI program that better reflects the standards and best practices set out in the Manual.
5.1 Several factors will determine the choice of which price collection methods a national statistical office (NSO) uses, taking into consideration efficiency, accuracy, and representativity of consumers’ purchasing patterns. For example, local price collection is costly but can have the advantage of covering a wide range of locations and items, particularly for food, alcohol, tobacco, and durable goods such as clothing, furniture, and electrical products. On the other hand, central collection, either at the head office or in regional offices, can be cheaper and may be used for products where there are national pricing policies, as for rail fares, or where prices cannot be observed directly in retail outlets, such as for many professional services. With regard to representing consumers’ purchasing patterns, the price collection method also needs to reflect methods of shopping. For instance, internet purchases or goods purchased through mail order and catalogs need to be properly reflected in the sample.
7.1 When a new good or service is produced and consumed, there is a need for it to be included in the index as soon as possible, especially if the good or service will have relatively high sales. New products might have quite different price changes than existing ones, especially at the start of their life cycle. In the initial period of introduction of a new product, producers and retailers often set higher prices than might be attainable once the market settles into a competitive equilibrium. There is a related problem of obsolete products, as the price changes of such products may be unusual. The products will be at the end of their life cycle and may be priced at unusually low prices to clear the way for new models.
10.1 The environment in which statistical agencies operate is changing. New opportunities to access and interrogate big data are becoming available, increasing the potential to provide new insights and possibilities for the compilation of consumer price indices (CPIs). The statistical landscape is becoming more complex, expectations of decision makers are growing, and national statistical offices (NSOs) are being challenged to deliver the best possible statistical program in more efficient and innovative ways.
11.1 Certain products have proven to be challenging for consumer price index (CPI) compilers with regard to developing weights and collecting prices. Chapter 11 focuses on selected special cases and provides detailed advice for some of the more challenging products and issues facing compilers. These include the treatment of seasonal products, internet purchases, housing, second-hand goods, own-account production, tariffs, telecommunications, transport services, health, education, social protection, and financial services.
13.1 Consumer price indices (CPI) are one of the most important statistical indicators produced on a regular basis by national statistical offices (NSOs). Besides informing economic policy, they are used for indexation of social security benefits, pensions, salaries and wages, and also for escalation clauses in private contracts, as mentioned in Chapter 2. Given the considerable financial consequences that any errors in the CPI can have on the government budget over the long term, as well as other financial implications related to wages and other uses as an escalator, accuracy and reliability are particularly paramount for a CPI.
14.1 The consumer price index (CPI) represents a key indicator of economic performance in most countries, as described in Chapter 2. Where statistics are categorized according to their potential impact, the CPI is always prioritized. It follows therefore that it must be published, and otherwise disseminated, according to the policies, codes of practice, and standards set for such data. In addition to having information on price movement at the total level, users often require information on the weights, methodology, and price movements at a more disaggregated level.
The price reference period—the period that provides the prices to which the prices in other periods are compared. The prices of the price reference period appear in the denominators of the price relatives, or price ratios, used to calculate the index. The price reference period is typically designated as period 0.