The Effects of the Frequency and Implementation Lag of Basket Updates on the Canadian CPI

Huang Ning (), Wimalaratne Waruna () and Pollard Brent ()
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Huang Ning: Statistics Canada, Consumer Prices Division, 170 Tunney’s Pasture, Ottawa, O.N., K1A 0T6. Canada.
Wimalaratne Waruna: Statistics Canada, Consumer Prices Division, 170 Tunney’s Pasture, Ottawa, O.N., K1A 0T6. Canada.
Pollard Brent: Statistics Canada, Consumer Prices Division, 170 Tunney’s Pasture, Ottawa, O.N., K1A 0T6. Canada.

Journal of Official Statistics, 2017, vol. 33, issue 4, 979-1004

Abstract: In this article, we examine the effects of different frequencies and implementation months of basket updates on the fixed-basket price index – the Lowe index, through theoretical analysis and empirical simulation using Canadian data from 2000 to 2013. We find that both an increased frequency of basket updates and a faster implementation of these new baskets will reduce substitution bias in the CPI. However, we also find that improvements to the method of accelerating frequency has diminishing marginal returns in practice – as each subsequent increase in the frequency with which the CPI basket is updated has a less pronounced effect; and the ideal link-month when a new basket is implemented is unpredictable, since the impact of the implementation lag depends upon the consistency between short-term price movements and long-term price trends.

Keywords: Consumer price index; Lowe formula; fixed-basket index; basket-update frequency; implementation lag; measurement bias; commodity substitution bias; superlative indexes; Fisher; Walsh; Törnqvist indexes (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:offsta:v:33:y:2017:i:4:p:979-1004:n:7

DOI: 10.1515/jos-2017-0046

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