Other Improvements in the CPI
The BLS is engaged in numerous CPI program enhancements not directly related to the
advisory commission recommendations. Some are part of the six-year CPI revision program
now underway: conversion to computer-assisted data collection and a telephone-based
Point-of-Purchase Survey, improvements to the Housing sample and estimator, and
enhancements to the CEX survey processing system. In addition, upcoming changes and
expansions in CPI sampling techniques will facilitate earlier incorporation of new
products into the index. The solutions to many CPI measurement issues, however, must await
methodological breakthroughs in economics, or improved availability of data.
It should be emphasized that substitution bias accounts for a relatively small part of
the total bias that the advisory commission argues exists in the CPI. Quality change in
existing goods and services, the introduction of new products, the establishment of new
outlets, and the disappearance of older products and outlets present extremely important
issues for which there are, as yet, no general solutions. The absence of general solutions
explains why the commission had no short-run recommendations in these areas, beyond their
implied suggestion concerning the expanded use of hedonic regression techniques. The BLS
will continue to study the pertinent intermediate-run recommendations— investigation
of improved item classification structures, use of leasing equivalence for automobiles,
and direct pricing of health insurance—but these are unlikely to solve the
fundamental measurement problems even in specific CPI components. Finally, the absence of
systematic, well-accepted ways to deal with these problems also means that there are no
rigorous ways to measure the new outlet or quality/new goods biases potentially created in
the CPI.
In summary, the concluding statements of the BLS report to the House Budget Committee
in April 1995 remain applicable today. The BLS is intensely aware of the sensitive nature
of the data it produces, and of the critical need for these data to be as accurate as
possible. It will continue to investigate the measurement issues that it and others have
identified, and will introduce corresponding improvements to the index as quickly as it
can.
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Last Modified Date: October 16, 2001
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