In view of the wide range of important issues that have been raised, the BLS asked the Committee on National Statistics to convene the current panel, which was charged with two primary tasks: “(1) investigating conceptual, measurement, statistical, and data issues in the development of cost-of-living indexes and (2) assessing the appropriate use of such indexes for indexing federal programs and other purposes.” The statement of task further notes: “Topics of the assessment would include the required frequency, the technical appropriateness of revisions, and the treatment of quality change and new products. The panel would be asked to make explicit the assumptions and models underlying different approaches and to recommend a program of research and experimental measures.” The remainder of this initial chapter provides a brief introduction to the key issues and problems considered by the panel in its effort to contribute to the understanding of price and cost-of-living indexes and their limitations and complexities.
Chapter 2 considers alternative conceptual foundations for the CPI, specifically COGI and COLI approaches. The chapter steps through the key attributes (many of which are taken up in greater detail later in the report) that define price and cost-of-living indexes and examines the relative strengths, weaknesses, limitations, and implications associated with each of these approaches.
Chapter 3 presents the panel’s assessment of what goods, broadly defined, are appropriate for inclusion in the scope of CPI coverage. An all-encompassing cost-of-living index would attempt to cover—in addition to private market goods —goods provided by government, environmental amenities, and other nonprivate societal conditions (such as public safety).
Chapter 4 discusses the conceptual rationale, methodology, and limitations of adjusting indexes or observed price quotes to account for changing item quality. The chapter reviews in detail current BLS approaches of price adjustment that come into play when items are replaced in sampled outlets. The panel assesses these methods and advances proposals relating to the use and potential of different quality adjustment methods.
Chapter 5 first discusses two issues related to the introduction of new goods: (1) what criteria should determine when and how new goods are introduced into the index and (2) should estimates of “virtual price” decreases associated with their introduction be made and incorporated into the CPI? The second part of the chapter addresses how changes in the patterns of consumer patronage among different types of retail outlets affect living costs and price indexes. The panel specifically considers what, if anything, BLS could do to identify and estimate quality and pure price components of differences in the observed prices of goods across outlets.
Chapter 6 examines conceptual and measurement issues pertaining to the construction of the complicated medical services component of the CPI. Those complications include high variability of prices paid for equivalent services,