Consumer prices, the Consumer Price Index, and the cost of living

Article Abstract:

The Consumer Price Index (CPI) is not an adequate measure of the cost of living because of its lack of accuracy. Its positive bias of 1.1% drastically affects computations of per capita income and the Gross Domestic Product. To remedy this, CPI formulators should incorporate measures on substitution practice, that is, consumers' purchasing of one product instead of another when the price of the previous product goes up. Another source of bias is consumers' patronizing of retail outlets offering bargain prices. The CPI should also reflect consumer's purchasing of new products.

Evaluation, Economic aspects, Measurement, Consumer behavior, Economic indicators, Cost and standard of living, Cost of living

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The CPI Commission: findings and recommendations

Article Abstract:

The Consumer Price Index (CPI) exaggerates the change in the cost of living by around 1.1 percentage points a year, according to the CPI Commission. The CPI is, therefore, not an exact cost-of-living index because of practical and conceptual problems, although it is the most superior indicator available. The actual rate of price inflation is greatly exaggerated by the variations in the CPI, despite the revisions made by the U.S. Bureau of Labor Statistics. These changes in the CPI could continue to exaggerate the changes in the cost of living in the future.

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Quality change and new products

Article Abstract:

The effects of quality change and new products in the Consumer Price Index are evaluated by taking every product category and extrapolating findings on quality-change bias for related categories. The final estimate of quality-change bias is about 0.6% per year, which is slightly greater than the combined estimate of new-product and quality-change bias. The higher value is due to a more comprehensive review of related literature and consideration of the factors governing each of the 27 individual categories evaluated.

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