In considering such an option, one must (1) judge whether or not the PCE weights are really superior for this application and (2) if they are, determine whether the CEX would still be needed for the CPI program. The answer to the second question depends in part on the value placed on area and group indexes, which could not be constructed using NIPA data. Budgetary considerations aside, there is no inherent reason why BLS could not produce a flagship CPI using NIPA-based upper-level weights, while producing other indexes based on the CEX.

Let us first address the accuracy issue. Branch (1994) provides a comparison of CEX and PCE expenditure categories for the period 1992-1995. The comparison is limited to the universe of categories that are comparably defined; this leaves out two major ones—owner-occupied housing and health care. For a few categories, such as rental rates, utilities, and vehicle purchases, the correspondence ratio (CEX weight divided by PCE weight) is near 1.00, which is what one would generally hope for. For equivalent rent of owner-occupied dwellings, the CEX expenditure weight is much larger than shown in the PCE data, by a ratio of almost 2 to 1. For all other categories, though, the CEX expenditure weight is much smaller, and many are in the 0.4-0.6 range. This discrepancy calls into question the accuracy of the CEX weights. There is also a problem (documented in Triplett, 1997) that the total expenditure of households implied by CEX and PCE weights is drifting further apart, perhaps by as much as 1 percent a year. One should not jump to the conclusion that these differentials imply an accurate PCE and an inaccurate CEX, but the wide discrepancies clearly warrant further investigation since both sets of expenditure weights cannot be correct.

What is known about the relative strengths of the PCE and the CEX data? For certain types of expenditure categories, well-documented sources of household response error damage the credibility of CEX weights. Triplett (1997:15) states that “reporting biases are known to be serious in some consumer expenditure components.” For instance, households may underreport “vice” products such as alcohol or tobacco—for 1995, the ratio of CEX to PCE expenditure shares on alcoholic beverages was a dismal 0.34. In addition, survey respondents often fail to accurately recall the volume or timing of some frequently purchased items: for example, “other entertainment” has a correspondence ratio of 0.37, and “miscellaneous” has a ratio of 0.24. For a number of other categories, such as furniture or appliances, it is less clear why expenditure weights differ as sharply as they do between the PCE and CEX. (The ratio of CEX to PCE weights for the “household furnishings and equipment” expenditure category was 0.65-0.66 for the 1992-1995 period.) Here the problem may involve the PCE as much as the CEX. Businesses and governments buy furniture and appliances, but do not necessarily report (or categorize) these purchases in their accounting systems in a consistent way that allows them to be accurately identified and reported. The fact that other items (e.g., books, televisions, sound equipment) that are purchased broadly by both households and businesses—and for which it makes no obvious

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