Price Discounts and the Measurement of Inflation

24 Pages Posted: 17 Feb 2014

See all articles by Kevin J. Fox

Kevin J. Fox

UNSW Australia Business School, School of Economics

Iqbal A. Syed

UNSW Australia Business School, School of Economics

Date Written: January 2014

Abstract

Consumers are very responsive to sales, yet statistical agency practice typically under-weights sale prices in the Consumer Price Index (CPI), with some agencies excluding sale prices completely. Evidence is lacking on how this may impact on both the representativeness of prices included in the CPI and on estimates of inflation. We use high-frequency scanner data from US supermarkets to explore if there is any systematic directional impact. The key finding is that the exclusion of sales prices introduces a systematic eff ect. We also find that even when sales prices are included they are systematically under-weighted, but the under-weighting remains fairly stable over time so that inflation measurement is not signi ficantly a ffected.

Keywords: Cost-of-living, CPI, Regular prices, Retail sales, RYGEKS, Scanner data

JEL Classification: C43, E31

Suggested Citation

Fox, Kevin J. and Syed, Iqbal A., Price Discounts and the Measurement of Inflation (January 2014). UNSW Australian School of Business Research Paper No. 2014-05. Available at SSRN: https://ssrn.com/abstract=2393722 or http://dx.doi.org/10.2139/ssrn.2393722

Kevin J. Fox (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia
(02)9385-3320 (Phone)
(02)9313-6337 (Fax)

Iqbal A. Syed

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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