Modernizing the Consumer Price Index for the 21st Century (2022) / Chapter Skim
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6 Supplemental Subgroup Price Indexes
6 Supplemental Subgroup Price Indexes
Pages 141-154
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From page 141... ...
Of course, the motivation to marshal the resources needed to produce subgroup indexes is more powerful if it can be established that the rates of inflation experienced 141 A00858 -- Consumer Price Index REV.indd 141 8/15/22 11:54 AM
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, Chapter 8, provides a comprehensive examination of the conceptual basis of population subgroup indexes as well as practical data issues that complicate implementation. A00858 -- Consumer Price Index REV.indd 142 8/15/22 11:54 AM
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From page 143... ...
Longer term, a more useful approach to measuring cost-of-living increases experienced by the working-class population could involve constructing an index using expenditure weights for consumer units identified as belonging to a subset of quintiles of the income distribution. As described in this chapter, characterizing price inflation faced by modern working households requires an index that goes beyond a simple reweighting for a subset of households, and also measures price changes faced specifically by this group.
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From page 144... ...
of a democratic index in which individual price indexes are estimated for a representative sample of the whole population and then averaged by assigning the same weight to each consumer unit regardless of the magnitude of their total consumption expenditures. A00858 -- Consumer Price Index REV.indd 144 8/15/22 11:54 AM
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From page 145... ...
Researchers outside statistical agencies also have developed subgroup indexes that use different patterns of expenditure weights across groups. For example, using microdata from Eurostat's European Household Budget Surveys and the Harmonized Index of Consumer Prices, Gürer and W eichenrieder (2020)
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From page 146... ...
To create meaningful price indexes for demographic subgroups, it will be necessary to combine, for each consumer unit, monthly information on the prices it has paid, the amount expended on each item, and its basic demographic characteristics. A00858 -- Consumer Price Index REV.indd 146 8/15/22 11:54 AM
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A00858 -- Consumer Price Index REV.indd 147 8/15/22 11:54 AM
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From page 148... ...
. Crucially, Kaplan and Schulhofer-Wohl found that the greatest source of heterogeneity in households' inflation rates for the goods they track is variation in prices paid for the same types of goods -- not from variation in broadly defined consumption bundles of the type that would be picked up in indexes based only on expenditure weight adjustments.
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documented inflation inequality in health care using comprehensive claims data along with linked employer employee datasets for Utah between 2012 and 2015, finding that "there A00858 -- Consumer Price Index REV.indd 149 8/15/22 11:54 AM
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From page 150... ...
Research and policy making stand to benefit a great deal if these trends can be more accurately measured and, in turn, better understood. The potential return from investments in developing income-defined subgroup price indexes is further enhanced by ongoing work at the Bureau 7 Jaravel notes other potential data sources that could be exploited for measuring inflation inequality in the space of digital "free" goods, including Google, Skype, Wikipedia, maps, messaging, music, and all smartphone apps.
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From page 151... ...
Recommendation 6.1: Because of the urgency of issues related to in come and wealth inequality, social welfare, and poverty, developing price indexes for population subgroups along the income distribution should be a high priority for BLS. Identifying data sources that would ultimately allow production of price indexes by income quintile or, if possible, decile is a key part of this work.
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From page 152... ...
For this reason, other directions should be pursued when planning the development of price indexes for population subgroups. Recommendation 6.2: Even though the marginal cost of such exercises is not high, valuable CPI program resources should not be devoted to developing additional subgroup price indexes that simply entail a re weighting of upper-level expenditure categories.
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From page 153... ...
This kind of data integration, where prices of purchases are linked to specific households, would revolutionize statistical agencies' capacity to develop subgroup price indexes. While opening new doors for studying expenditure patterns at the granular levels needed to more fully measure differences in inflation by income group, electronic transactions data, at least as currently generated, do not cover all consumer expenditures; indeed, several key categories are missing.
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From page 154... ...
As progress is made on developing subgroup price indexes, BLS will need to maintain a strong communications effort to help users understand the best ways to utilize newly developed indexes as well as their limitations. This communication strategy may be all the more important for subgroup index programs since they have significant implications if used for indexing.
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