Abstract
Mary Lynn Schmidt (1995) "Comparing
market basket changes and the CPI," Proceedings of the
Section on Survey Research Methods, American Statistical
Association.
Consumer expenditures on specific items vary widely over
time, consumers tend to maintain a pattern of expenditures
for much longer time periods. The market basket of goods and
services that make up the Consumer Price Index (CPI) is
divided into seven major groups, such as food and beverages
or housing. The pattern of consumer expenditures at this
level changes more slowly than the components within a group.
A Consumer Price Index is one of the most widely used
economic indicators. It is a measure of the average change in
the prices paid, in the United States, by urban consumers for
a fixed market basket of goods and services. Knowing that
consumers are constantly offered new items to include in
their market basket, how do changing market baskets influence
the CPI? The answer is not unambiguous and depends on the
importance of the change in terms of total expenditures by
consumers.
When the price of a commodity goes up or down it is usual to
expect consumption of that commodity to go down or up,
respectively, as a result. In fact, most of us frequently
make such choices every time we go the supermarket. Price
indexes are produced to provide government, business, and
individuals a measure to compare prices over time and make
informed decisions on economic behavior. Many believe changes
in the Consumer Price Index reflects changes in their
standard of living. Because the CPI is a modified Laspeyres
index and keeps quantities fixed between revisions, it is a
measure of price change not a true Cost of Living Index.
The base period expenditure weights for the 1987 CPI revision
relied on the 1982, 1983 and 1984 Survey of Consumer
Expenditures (CE) and the 1980 Census of Population. While
there were many improvements to sampling techniques, data
collection, processing, and estimation associated with the
1987 revision, it also introduced a "rolling in"
process for new areas replacing discontinued areas.
The BLS sponsors the Continuing Point of Purchase Survey
(CPOPS) annually to provide an outlet frame to select outlets
in which to price items for the CPI. This survey is used in
combination with the now ongoing Consumer Expenditure Survey
to select items and outlets in approximately one-fifth of the
geographic areas (defined by the Bureau of the Census for the
Current Population Survey) included in the CPI each year.
Since the 1987 revision, two years of the most recent
Consumer Expenditure Survey data are used in selecting items
being rotated each year (Marcoot, 1985). New items and
outlets selected for the 1994 CPOPS were based on the 1992
and 1993 Consumer Expenditure Survey data. Thus, new items
and new outlets are being introduced in twenty percent of the
pricing areas annually. The entry level item reselection has
gradually changed the composition of the entry level items
being priced.
Last Modified Date: July 19, 2008
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