Reconsideration of Weighting and Updating Procedures in the US CPI

Greenlees John S. () and Williams Elliot ()
Additional contact information
Greenlees John S.: Research Economists, Division of Price and Index Number Research, US Bureau of Labor Statistics, PSB 3105, 2 Massachusetts Avenue, NE, Washington, DC 20212, USA.
Williams Elliot: Research Economists, Division of Price and Index Number Research, US Bureau of Labor Statistics, PSB 3105, 2 Massachusetts Avenue, NE, Washington, DC 20212, USA

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2010, vol. 230, issue 6, 741-758

Abstract: In 2002, the US Bureau of Labor Statistics (BLS) introduced a supplemental C-CPI-U employing a superlative formula to provide a closer approximation to a cost-of-living index (COLI). This paper focuses on whether the BLS can improve upon the headline CPI-U’s current biennial weight update process, thereby reducing the CPI-U’s growth rate and bringing the index closer to the C-CPI-U.We begin by estimating superlative price indexes for 1999 through 2007 along with indexes based on the constant-elasticity-of-substitution demand model. Our analyses confirm that the consumer expenditure data underlying the CPI imply substantial consumer substitution, implying that the CPI-U’s Lowe index formula yields higher inflation estimates than would a true COLI.Simulating feasible weight update processes, we find that a Lowe index with two-year weight reference periods but annual updating rises by about 0.03 percentage points less per year than the CPI-U. Another 0.01 percentage point on average is subtracted by imposing annual revision with one-year base periods. Thus, indexes with more timely weights may offer improved representation of current price change, as well as closer approximations to a COLI.

Keywords: Aggregation; Consumer Price Index; CPI; index numbers; Aggregation; Consumer Price Index; CPI; index numbers (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1515/jbnst-2010-0609 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:230:y:2010:i:6:p:741-758

DOI: 10.1515/jbnst-2010-0609

Access Statistics for this article

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik) is currently edited by Peter Winker

More articles in Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik) from De Gruyter
Bibliographic data for series maintained by Peter Golla ().