Improving quality of the scanner CPI: proposition of new multilateral methods

Abstract

Scanner data can be obtained from a wide variety of retailers (supermarkets, home electronics, Internet shops, etc.) and provide information at the level of the barcode, i.e. the Global Trade Item Number or its European version: European Article Number. One of advantages of using scanner data in the Consumer Price Index measurement is the fact that they contain complete transaction information, i.e. prices and quantities for every sold item. One of new challenges connected with scanner data is the choice of the index formula which should be able to reduce the chain drift bias and the substitution bias. Multilateral index methods seem to be the best choice in the case of dynamic scanner data sets. These indices work on a whole time window and are transitive, which is a key property in eliminating the chain drift effect. Following the so-called identity test, however, one may expect that even when only prices return to their original values, the index becomes one. Unfortunately, the commonly used multilateral indices (GEKS, CCDI, GK, TPD, TDH) do not meet the identity test. The paper discusses the proposal of two multilateral indices, the idea of which resembles the GEKS index, but which meet the identity test and most of other tests. In an empirical study, these indices are compared, inter alia, with the SPQ index, which is relatively new and also meets the identity test. Analytical considerations as well as empirical study confirm the high usefulness of the proposed indices.