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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes
hold-reported expenditures which, in turn, affects the accuracy of upper-level CPI item category weights.
Before additional resources are directed toward increasing its sample size (beyond the current plan), the accuracy of the CEX should be carefully evaluated. Assessing the net advantages of using the BEA’s per-capita personal consumption expenditures (PCE) data to produce the upper-level weights for the national CPI should be part of this evaluation. (Recommendation 9-1)
Comparison of the CEX and PCE estimates suggests that, even allowing for errors in the latter, the CEX generates biased weights for a number of items. Even if the current system is ultimately maintained, the effort will produce additional guidance about how the CEX might be improved.
If categories can be reasonably well matched between the CPI and PCE, so that comparable item strata indexes can be created, a program should be set up to produce an experimental CPI that uses PCE-generated weights at the upper (218 item) level but that is otherwise no different from the CPI. (Recommendation 9-2)
Even if it is confirmed that the CEX is the best choice for establishing upper-level expenditure weights, the panel is hesitant to recommend expensive increases in the sample size. The panel’s calculations suggest that, if the goal is only to reduce the standard error of the national-level expenditure weights, resources spent to increase the sample size of the CEX beyond that which is currently planned would be largely wasted.
In considering alternative data collection approaches, the panel suggests that BLS (1) investigate the possibility of combining the POPS and CEX into an integrated survey that obtains expenditure and outlet-use data at detailed product levels, along with household demographic information needed for subgroup indexes and (2) continue its work on increasing the utilization of both store- and household-based scanner data.