Price Discounts and the Measurement of Inflation: Further Results

83 Pages Posted: 24 May 2016

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: May 1, 2016

Abstract

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

Fox, Kevin J. and Syed, Iqbal A., Price Discounts and the Measurement of Inflation: Further Results (May 1, 2016). UNSW Business School Research Paper No. 2016-05. Available at SSRN: https://ssrn.com/abstract=2775505 or http://dx.doi.org/10.2139/ssrn.2775505

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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