Item selection and quality change in the Canadian CPI

Article type: Research Article

Authors: Lowe, Robin^{; 1}

Affiliations: Prices Division, Statistics Canada, Ottawa, Ontario, Canada K1A 0T6. E-mail: [email protected]

Note: [1] This is a revised version from the original draft prepared for the April 1997 meeting of The Ottawa Group. The paper has benefited from discussions with many people responsible for the CPI, in particular Ted Baldwin, and Mark Prud'homme. Candace Ruscher and Micki Kaminska did most of the computations.

Abstract: This paper examines the methods of adjustment for quality change made in the Canadian CPI for the period 1989 to 1994. It finds that in most cases the current Canadian practice ensures that the replacement of one commodity by another, one variety of a commodity by another, or one outlet by another, has no impact on the overall index. The main exceptions to this result occur when replacing varieties of commodities that are purchased only occasionally, and a judgement is made that the quality ratio between the old and new variety is not the same as the ratio of their prices. In these cases there is an impact on the index, up or down, depending on whether the change in price reported is higher or lower than the change in quality. From the experience of the CPI in these six years there has been a correlation between the price ratio of a variety and its replacement and the index movement that derives from the judgement. The direction and size of the impact on the index depends largely on whether an item is replaced with a higher or lower priced item. For these reasons, the paper argues that more attention should be paid to ensuring that the item selection is more representative of current sales than has traditionally been the case.

Keywords: Price index, Quality change, Sampling

DOI: 10.3233/SJU-1998-15103

Journal: Statistical Journal of the United Nations Economic Commission for Europe, vol. 15, no. 1, pp. 53-76, 1998