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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes
rotation. New item and outlet samples are drawn annually for a subset of the 218 defined TPOPS item categories, so the entire sample turns over periodically (the previous procedure rotated geographic areas rather than item categories). Because of the importance of this process in getting new products into the CPI basket, the Conference Board (1999:25) recommended that BLS speed up sample rotation. Citing how quickly new products enter the marketplace in the modern economy, the group recommended an eventual 2-year rotation schedule for most categories and an annual rotation for categories subject to frequent change.
It is important to point out that the BLS has made significant strides in improving its survey structure to decrease time between outlet and item rotation. Part of the CPI Improvement Initiative was used to begin data collection procedures designed to incorporate new goods into the index more quickly. In addition to moving from an area-based to an item-based outlet rotation process, TPOPS has shortened the amount of time necessary to draw an outlet sample. Instead of one-fifth, one-fourth of outlet samples (and contemporaneously item samples) will soon be rotated each year, which decreases the amount of time needed for full rotation from 5 years to 4. Lane (2000:8) notes that, “by 2003, when the CPI has initiated an entire cycle of outlets based on TPOPS, the outlet samples will be significantly more current than they were before 1999.” More frequent rotation might also be complemented to some degree by expanded use of targeted and directed replacement procedures with which BLS is currently experimenting. Targeted outlet item rotation would allow TPOPS categories associated with quickly changing markets to be rotated on a fast-track basis; targeted item rotation involves increasing, ad hoc, the probability of selecting specific items. BLS is also looking at methods for decoupling item and outlet rotation so that items could be rotated (within the current sample of outlets) without waiting for outlet rotation. Targeted replacement is suggested since outlet rotation is a particularly time-consuming and expensive aspect of CPI sampling. Rotation only at the item level may offer a way around this practical constraint, at least for items that enter the index through stores (or types of stores) already represented in the sample.
Sampling is done for 300-400 entry-level items (ELIs), like oranges, which are more finely specified examples of the 218-item strata, such as citrus fruits. Item strata correspond roughly to the TPOPS categories. If new items encountered in the sample rotation process fit existing ELI definitions, they can be readily brought into the CPI through overlap pricing, since new and old items are both available in at least one period (in which case the base period price difference between the new and old items is implicitly treated as completely due to quality differences).
From time to time, new items appear in the system that do not fit existing ELI definitions but are close substitutes for items that do. The example cited in Armknecht et al. (1997) is CD players, which were clearly substitutes for phonographs and tape players. Such items emerge in Consumer Expenditure Survey (CEX) interviews and are coded separately so that expenditure data can be en-