the largest positive and negative changes; and the weighted median rate of change of the individual items in the index (see Cecchetti, 1997). Policy makers also typically want to examine current trends in producer prices for finished, intermediate, and crude goods, as well as import prices and the employment cost index. However, the central banks and governments of advanced countries have sizable economic and statistical staffs who can manipulate individual components of the CPI, the PPI, and other indexes to produce these sorts of analytical tools. Except perhaps by generating a demand for additional or different subaggregations of goods, these are not matters that involve the basic design of the indexes.

TECHNICAL NOTE: THE CPI VERSUS THE NIPA PRICE INDEX AS AN INFLATION MEASURE

As measures of aggregate inflation, the NIPA indexes have some advantages over the CPI. First, an overall measure of inflation ought to include the prices of all privately produced goods and not only consumer goods. Some have argued that if an index of inflation for the goods purchased by consumers remains stable, changes in the prices of investment goods can be ignored, since satisfying consumer needs is the objective of the economy. But that is only true in a steady state and is not a very helpful assumption when analyzing economic conditions, which often change rapidly and unexpectedly. Aggregate NIPA inflation indexes are available quarterly for total GDP and for gross domestic purchases (including imports, by all domestic users) and for a fairly detailed set of components, including, of course, many categories of consumer goods.26

The fact that an index that includes capital goods is a useful inflation indicator does not imply that indexes of consumer prices, CPI or NIPA, should abandon the current practice of pricing the service flows from the housing stock and return (in the case of the CPI) to pricing house purchases. The broader price index, congruent with the definition of GDP, should (and does) price both the flow of goods and services for consumption and the stream of outlays on all capital goods, including housing.

One characteristic of the NIPA inflation indexes is that they provide a Fisher-type index on a real-time basis, whereas such an index for the CPI will only be made available after a 2-year lag. To estimate a real-time Fisher index for the CPI, it would be necessary to rely on a forecast approximation. In a comparison made for recent years, the real-time CPI, which is Laspeyres at the upper

26  

Publishing a measure of inflation for the private-sector GDP might be helpful for some individual users. It would exclude the output of government employees (in which, by assumption, productivity gains are zero and price changes equal wage changes) and would save users the effort of calculating it from the published data.



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