households ideally defined in terms of a number of characteristics—age, race, income, and family composition, as well as geographic location—with the prices weighted by the group’s budget shares allocated to the purchase of each of those goods. The sample of households within each subgroup would have to be large enough to ensure that a continuing series of price observations could be collected on individual items, including long-lived items only occasionally purchased by individual households. Moreover, the collection system would have to identify the attributes of the items purchased with sufficient detail to allow BLS to determine—as it now does—whether the particular items that are priced month to month were comparable and to make appropriate substitutions when they were not.
No individual household, during the time interval covered, would itself have bought more than a fraction of the type and quality of goods whose prices are included in a subgroup index. But the index would reflect the distribution of the relevant qualities and prices of goods that were available to individual households in the subgroup, given their income, location, and other characteristics, and the conversion of that opportunity set into a distribution of prices actually paid by households who followed the average search strategy and shopping behavior of the group.
Subgroup indexes stratified by income, by age, or by other characteristics would incorporate not only differences among population groups based on the allocation of their budgets among broad expenditure categories but also differences in the prices and qualities of items purchased and in the kind of outlets at which they were purchased. Indexes could then be calculated for groups classified by income level (e.g., income deciles or quintiles) and combined to give equal importance to each income so as to approximate a democratic index. And, of course, if individual group indexes, say for the elderly or the poor, frequently moved differently from an overall national index, they could be used for indexing public transfer payments going to those groups.
Although the sorting of households into separate subgroups by income, or age, or location is likely to remove a good bit of the heterogeneity—and especially the kinds of heterogeneity that have the most social significance—each index for a group classified by one or two characteristics is still an average across individuals who have differences associated with other characteristics and with idiosyncratic tastes. An index for the elderly would combine rich and poor people, and the index for the poor would combine the old and the young. And, in any classification, the weights implicitly assigned to the prices paid by smokers and nonsmokers, vegetarians and meat eaters, represent an average across the remaining heterogeneity. Yet if data were collected in a way which linked prices paid to the characteristics of individuals, it would be possible to produce special indexes for groups with observable differences in tastes—e.g., those for whom a succession of monthly reports shows no purchases of cigarettes or meat—with the data possibly cross-classified by income group.