Abstract
Dennis Fixler and Ted Jaditz (2002) "An
Examination of the Difference Between the CPI and the PCE Deflator."
Both the Bureau of Labor Statistics (BLS) and the Bureau of Economic
Analysis (BEA) produce measures of the change in prices the consumers pay
on the goods that they consume. While these measures tend to agree
in broad historical trends in prices, they sometimes give different
pictures of inflation over short horizons.
There are several reasons why these indexes differ. First, the
two indexes use different formulas. For the period in question, the
CPI is a Laspeyres index, while the BEA product is a Fisher Ideal index.
Second, the two indexes have different underlying concepts. The BLS
product measures the prices paid by (urban) consumers, while the BEA
product measures the prices of final consumption goods, wherever they are
purchased. Finally, even when there is significant agreement
across indexes in the broad outlines of coverage, differences in how the
detailed components are implemented lead to differences in how prices are
measured and differences in the weights attached to specific indexes.
We quantify the magnitude of each of these factors. There is no
one "smoking gun" that explains the discrepancy between the indexes.
Rather, the overall discrepancy is the result of the accumulation of a
number of small effects.
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