Price-updating of weights in the CPI

Article type: Research Article

Authors: Hansen, Carsten Boldsen

Affiliations: Statistical Division, UNECE, Palais des Nations, CH 1211 Geneva 10, Switzerland. Tel.: +41 22 917 3370; Fax: +41 22 917 0040; E-mail: carsten.hansen@unece.org

Abstract: On the basis of the international Consumer Price Index Manual [4] the paper discusses the issue of price-updating of expenditure weights for the regular calculation of the consumer price index (CPI). The decision on how to calculate the CPI is considered as a three-step procedure: firstly, the purpose of the index is defined; secondly, an ideal index is chosen as a target and thirdly, the formula for the regular CPI calculation has to be decided upon. In practice most, if not all, countries calculate the ongoing CPI as an arithmetic expenditure weighted average of the elementary aggregate indices, applying weights from a past reference period. In this context it is argued that the question of whether to price-update the expenditure weights or not is important for the interpretation of the CPI and may have significant influence on the measured rate of price change. The question of price-updating is discussed by use of the Lowe and Young indices introduced in the CPI Manual. The conclusion summarizes the main findings.

Keywords: Consumer price index, price-updating, expenditure weights, Lowe index, Young index, bias

DOI: 10.3233/SJU-2006-23402

Journal: Statistical Journal of the United Nations Economic Commission for Europe, vol. 23, no. 4, pp. 249-261, 2006