A Number of Concerns Arising from a Closer Look at the Estimation of the Consumer Price Index

Abstract

In first place, I can easily imagine that the inflation rate is the daily bread for financials. In second place, I am positively sure that the routinely compilation of the consumer price index (CPI) done by any statistical agency constitutes “a tour the force”. In third place, I am convinced it is time that we all realize that the CPI constitutes a scientific object. My aim is to share with the reader some concerns of a closer look at the estimation of the CPI. I use a four-step structure. To really understand its meaning, in the first step I evoke its practical origin, namely, the measurement of the purchasing power of a group of “homogenous” consumers. To explore some fundamental decisions faced by statistical authorities, in the second step I review its mathematical formalization. In the third step I display some alternatives to the current aggregate method of the so-called ordinary price index, and in the fourth step I examine some typical biases of the CPI compile in the NAFTA economies.