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The Effects of the Frequency and Implementation Lag of Basket Updates on the Canadian CPI

Author

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  • Huang Ning
  • Wimalaratne Waruna
  • Pollard Brent

    (Statistics Canada, Consumer Prices Division, 170 Tunney’s Pasture, Ottawa, O.N., K1A 0T6. Canada.)

Abstract

In this article, we examine the effects of different frequencies and implementation months of basket updates on the fixed-basket price index – the Lowe index, through theoretical analysis and empirical simulation using Canadian data from 2000 to 2013. We find that both an increased frequency of basket updates and a faster implementation of these new baskets will reduce substitution bias in the CPI. However, we also find that improvements to the method of accelerating frequency has diminishing marginal returns in practice – as each subsequent increase in the frequency with which the CPI basket is updated has a less pronounced effect; and the ideal link-month when a new basket is implemented is unpredictable, since the impact of the implementation lag depends upon the consistency between short-term price movements and long-term price trends.

Suggested Citation

  • Huang Ning & Wimalaratne Waruna & Pollard Brent, 2017. "The Effects of the Frequency and Implementation Lag of Basket Updates on the Canadian CPI," Journal of Official Statistics, Sciendo, vol. 33(4), pages 979-1004, December.
    • Handle: RePEc:vrs:offsta:v:33:y:2017:i:4:p:979-1004:n:7
    DOI: 10.1515/jos-2017-0046
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    References listed on IDEAS

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