Paul A. Armknecht, Brent R. Moulton, and Kenneth J.
Stewart (1995) "Improvement to the Food at Home,
Shelter, and Prescription Drug Indexes in the U.S. Consumer Price
While the U.S. Consumer Price Index (CPI), as a
Lasyeyres-type index, attempts to measure the average change
in the prices paid by urban consumers for a fixed market
basket of goods and services, new samples for most item
categories are routinely introduces over time to keep the CPI
sample representative of consumer spending patterns.
This paper will describe methodological changes being
implemented in January 1995 to the food at home, shelter, and
prescription drug components of the U.S. Consumer Price Index
(CPI). These changes reflect improvements designed to make
the CPI more representative of price changes experienced by
Food at Home. The U.S. Bureau of the Census conducts a
Point-of-Purchase Survey (POPS) to provide the sampling frame
of outlets for most non-shelter components of the U.S. CPI.
To keep the outlet and item samples representative of
consumer expenditures, the POPS is conducted annually in
approximately 20 percent of the Primary Sampling Units (urban
areas) in the CPI and new outlets are selected to replace the
The procedures currently used by the U.S. CPI cause it to
give high weight to sample items that are on sale during the
month that a replacement sample is introduced, and low weight
to sample items that are not on sale. These procedures can
cause an overstatement of price change in an urban area
immediately after its sample is replaced. We discuss a sample
aging procedure that will be used to alleviate this problem
for food-at-home items.
Shelter. Further investigation of the functional form bias
noted for non-shelter items (Reinsdorf 1994) has uncovered an
analogous problem with the estimator used for imputation of
implicit rent changes for owner occupied housing. In
addition, rent data are collected less frequently than other
prices, at 6-month intervals. The current rent indexes are
estimated using a composite of 6-month rents and renters'
reports of 1-month rent changes. We discuss both improvements
in our strategy for imputing changes for owner's implicit
rents, as well as changes in our treatment of estimating
changes for rent.
Prescription Drugs. Another potential source of bias in the
U.S. CPI is the treatment of brand name prescription drugs
after their patent expires. Griliches and Cockburn (1993)
present evidence that there is substantial substitution of
generic drugs for brand drugs when patents expire. The U.S.
CPI does not pick up such substitution in a timely manner. To
address this situation, BLS will institute new substitution
procedures for the prescription drug component of the CPI.
Last Modified Date: July 19, 2008