Seasonal Commodities in the CPI: An Economic Inquiry

Abstract

This paper looks at the problems associated with the treatment of seasonal commodities in a consumer price index. Economic assumptions behind various commonly used methods are examined from the cost-of-living perspective. Other economic issues concerning seasonal commodities are also discussed. Under certain conditions, a fixed basket approach using price imputation is shown to be equivalent to a seasonal basket approach. A new theoretical justification based on the theory of preference change is provided for the maximum overlap method. Empirical studies using a particular data set show that indices based on various approaches give substantially different results. The studies also demonstrate a potential problem in chaining monthly price indices.