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