Estimating the impact of quality adjustment on consumer price inflation

Jan-Oliver Menz, Elisabeth Wieland and Günter W. Beck

No 2773, Working Paper Series from European Central Bank

Abstract: How important is quality adjustment in measuring consumer price inflation? We address this question using different sources of micro and macro price data. For Germany, based on micro price data covering 85% of the CPI basket, but lacking some items subject to quality adjustment, we find that price adjustments due to quality changes reduce headline inflation by only 0.06 percentage points on average. This is offset by an increase of the same amount due to quantity adjustments (e.g. smaller package size). However, scanner data analysis suggests a larger impact for goods subject to quality adjustment, leading to an overall estimate of 0.6 percentage points for Germany. For the euro area, we show that the use of heterogeneous quality adjustment practices across member states has a significant impact on cross-country inflation differentials and distorts the level of inflation. Using scanner data for consumer and household electronics, we find that cross-country inflation differentials may be overestimated by about 0.5 percentage points, and the euro area (Big-5) inflation rate by about 0.3 percentage points due to non-harmonised quality adjustment methods. JEL Classification: E31, C43

Keywords: consumer prices; inflation differentials; inflation measurement; quality adjustment; scanner price data (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-eec and nep-mon
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Related works:
Working Paper: Estimating the impact of quality adjustment on consumer price inflation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232773

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