likely to be minor, systematic early inclusion of new goods broadly could have a significant effect on index growth.

There are limits on the extent to which speeding up product introduction will relieve the problem, however, since the BLS may not be able to justify—for both analytic consistency and budgetary reasons—revolving a large number of new goods on an extremely short-cycle schedule. Analytically, more rapid rotation and more frequent rebasing require proportionately more chaining of indexes with non-identical components, which can exacerbate index drift (see Glossary). On the cost side, each rotation creates inefficiency because another period must elapse (to produce a price change) before quotes on new items can be used. As rotation frequency increases, the amount of information used in the index relative to the total amount of information collected is decreased.

Finally, though it is important that new items be introduced into the index once they are commonly consumed, they need to be entered with a correct expenditure weight. Since only price data are compiled on a monthly basis, it is not easy to estimate a weight immediately. Thus, there may be a tradeoff between timeliness and accuracy of item weights. For many cases, it may only be practical to introduce new items into the sample rotation after a significant and estimable market share emerges.

In light of these considerations, two approaches to the item introduction problem seem potentially worth considering by the BLS. First, broader ELI and item strata definitions or definitions couched in terms of function instead of product (e.g., audio reproduction instead of phonographs and tape players) might reduce substantially the number of new items that must be excluded for long periods because they do not fit existing definitions.15 We recognize that there is likely a tradeoff between breadth and clarity of boundaries, but that does not establish that more breadth would not be better. Second, the Conference Board suggests expanding the BLS’s small program of special sampling to “arrange for regular consultations with panels of experts . . . persons who are likely to know when important new consumer products have recently or soon will reach the market.” This, too, seems sensible and worth serious consideration.

NEW OUTLETS

Current Practice

BLS rotates a portion of its sample of retail stores and business establishments each year. The probability of an outlet being selected is proportional to store-by-store expenditures reported by consumers in TPOPS. Outlet rotation is

15  

The 1998 revisions did, of course, make such adjustments to broaden the scope of video and audio items.



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