Our ability to reduce the heterogeneity problem through the use of group indexes is unfortunately limited by the practical problem of costs. To produce true subgroup indexes, one would have to collect both price and quantity data directly from individuals so that prices and individual characteristics could be linked. Once income data are collected from individuals, it is relatively easy to add simple information on a number of other characteristics, such as age, race, and family composition. But, as we explain below, the size of the sample from which data have to be collected rises rapidly as one increases the number of characteristics that demarcate subgroups. A very large and expensive survey would be necessary in order to produce subgroup indexes cross-classified by many characteristics—e.g., elderly, Hispanic, New England households in the third income quintile, although there may be ways to reduce the size of the required sample (see below).

HOW MIGHT DATA FOR SUBGROUP INDEXES BE ASSEMBLED AND WHAT WOULD IT COST?

Currently, data on prices are collected by BLS in a separate operation from the survey that yields the expenditure patterns used to provide the weights for combining strata indexes into the overall CPI. At the lower (within-stratum) level, the separate Telephone Point-of-Purchase Survey (TPOPS) provides data on the distribution of consumer purchases across retail outlets and on consumer purchases for each of more than 200 relatively detailed categories of goods (see Chapters 1 and 9). But as we have repeatedly stressed, the stratum price index (e.g., for “men’s suits and sports coats”) that goes forward to the upper-stage indexes is based on price data furnished by retail stores, from Neiman-Marcus to J.C. Penney. In order to construct indexes that reflect individual circumstances and shopping behavior, specific households must be tied to specific items, prices, and outlets. To do so, the current system would have to be radically revised so that data on prices and expenditures for specific identifiable items are principally collected not from sellers but from individual households, so that their demographic and locational characteristics can be linked to the prices they pay.

The first problem to be faced in producing these kinds of subgroup indexes lies in the feasibility of collecting monthly data on prices paid from a panel of households. For certain kinds of purchases, such as utilities, panel reporting should be feasible. BLS already conducts a housing survey to obtain rental prices, which might relatively easily collect periodic economic and demographic household information. But with current interview, telephone, or diary survey techniques, the burden of continuous reporting over a period of months and associated problems of reliability and product identification may well be such that for many categories of goods and services it would prove infeasible. However, there are various, more technologically advanced methods, some of which have been used by private survey firms, that could be investigated to determine whether



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