Price Discounts and the Measurement of Inflation: Further Results
83 Pages Posted: 24 May 2016
Date Written: May 1, 2016
Consumers are very responsive to sales, yet statistical agency practice typically under-weights sale prices in the Consumer Price Index (CPI). Evidence is lacking on the impact on 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 effect. 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 significantly affected. In addition, we find evidence that the typical practice of using data from an incomplete period in constructing unit values can lead to an upward bias in the resulting price index.
Keywords: Cost-of-living, CPI, Regular prices, Retail sales, RYGEKS, RYCCD, Scanner data
JEL Classification: C43, E31
Suggested Citation: Suggested Citation