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December 1996, Vol. 119, No. 12
New methodology for selecting outlet samples
To maintain the accuracy of the Consumer Price Index (CPI), the Bureau of Labor Statistics conducts a review of the CPI program approximately every 10 years. Out of this review flows improvement initiatives known as CPI revisions. One of the major objectives of each revision of the CPI is to update the content and definition of its so-called market basket, the set of goods and services that are purchased for consumption by urban consumers and that are, therefore, eligible to be priced for the CPI. Consumers change their purchasing patterns over time, and to ensure a contemporaneous nexus between average price change as measured by the CPI and the spending behavior of urban consumers, it is necessary to redefine and update the market basket periodically.
One method used to modernize the CPI market basket is to revise the item classification structure. The structure is updated and redefined to correspond to a more current view of the consumer marketplace.1 The other method is called sample rotation, which is simply the ongoing process of reselecting the sample of products and services that represent the market basket items in each geographic area (primary sampling unit) included in the CPI sample. This is accomplished by (1) reselecting the retail stores and business establishments to be visited by BLS field representatives and (2) reselecting the unique products and services to be priced for the market basket. For example, a cassette tape sold in Outlet A could be replaced by a compact disk sold in Outlet B to represent the market basket item "records and tapes."
Currently, sample rotation is engineered through the Continuing Point-of-Purchase Survey (CPOPS). This household survey provides the Bureau with a sampling frame of outlets and retail establishments visited by urban consumers. Conducted via a personal-visit interview, the CPOPS obtains data on the types of goods and services consumers purchase, the amount of these expenditures, and the places the expenditures were made. The survey is administered roughly once every 5 years in each primary sampling unit (here after, sampling unit) on a rolling basis, so that every year 20 percent of all sampling units participate. The CPI outlet and item samples are then updated and replaced in those sampling units, using information collected in the CPOPS. Because rotation occurs every year, it has the advantage of providing a contemporaneous sample of unique goods and services to represent an otherwise fixed market basket of items. This allows the overall sample to represent current consumer spending behavior without overly compromising the CPIs theoretical foundation as a fixed-base quantity price index.
This excerpt is from an article published in the December 1996 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 See Walter Lane, "Changing the item structure of the Consumer Price Index," this issue, pp. 1825.
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