Estimating the impact of quality adjustment on consumer price inflation

Jan-Oliver Menz, Elisabeth Wieland and Jens Mehrhoff

No 2773, Working Paper Series from European Central Bank

Abstract: How much does quality adjustment matter in measuring consumer price inflation? To address this question, we use different sources of micro and macro price data for Germany and the euro area. For Germany, we find that quality adjustment applies to a large range of goods and services but, on average, price adjustments due to quality changes reduce headline inflation only by 0.06 percentage points, which is balanced out by an increase due to quantity adjustment (e.g. a smaller package size) of the same amount. For the euro area, we assess the impact of heterogeneous quality adjustment methods by deriving the distribution of member states’ cumulative inflation rates for typical quality-adjusted products. Our macro-based estimate makes up to ± 0.2 percentage points for headline HICP inflation and ranges between± 0.1 and 0.3 percentage points for core inflation, when controlling for income differentials between member states. [...] JEL Classification: E31, C43

Keywords: inflation differentials; inflation measurement; micro price data; quality adjustment (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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