The measurement of inflation: Aggregation at the basic level

Abstract

The advent of bar-code, retail scanner data provides an alternative data source for the compilation of consumer price indexes. This paper outlines the nature and merits of such data for this purpose. The data allows aggregation via superlative index number formulae at a very elementary level and provides superior coverage to conventional sources. However, it has been argued that aggregation bias may still arise if the unit values which feed into the superlative indexes are defined for product items, as opposed to product items for given outlets. We explore for six products the nature and extent of unit value bias by outlet type. For three products we found the level of aggregation did not matter. However, we also found it can matter and established the extent of its effects which were always the aggregation by model only, falling less than by model and outlet. This should help provide a basis for an understanding of the issues at stake in the use of scanner data for the compilation of consumer price indexes.