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Price Discounts and the Measurement of Inflation

Author

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  • Kevin J. Fox

    () (School of Economics, Australian School of Business, the University of New South Wales)

  • Iqbal A. Syed

    (School of Economics, Australian School of Business, the University of New South Wales)

Abstract

Consumers are very responsive to sales, yet statistical agency practice typically under-weights sale prices in the Consumer Price Index (CPI), with some agencies excluding sale prices completely. Evidence is lacking on how this may impact on both the representativeness of prices included in the CPI and on estimates of in ation. We use high-frequency scanner data from US supermarkets to explore if there is any systematic directional impact. The key finding is that the exclusion of sales prices introduces a systematic effect. We also find that even when sales prices are included they are systematically under-weighted, but the under-weighting remains fairly stable over time so that in ation measurement is not significantly affected.

Suggested Citation

  • Kevin J. Fox & Iqbal A. Syed, 2014. "Price Discounts and the Measurement of Inflation," Discussion Papers 2014-05, School of Economics, The University of New South Wales.
  • Handle: RePEc:swe:wpaper:2014-05
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2014-05.pdf
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    References listed on IDEAS

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    Cited by:

    1. de Haan, Jan & Diewert, W. Erwin & Fox, Kevin J., 2015. "Weekly versus Monthly Unit Value Price Indexes," Economics working papers erwin_diewert-2015-15, Vancouver School of Economics, revised 20 Jul 2015.
    2. Iqbal A. Syed & Jan De Haan, 2017. "Age, Time, Vintage, And Price Indexes: Measuring The Depreciation Pattern Of Houses," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 580-600, January.
    3. Kevin J, Fox. & Iqbal A. Syed, 2016. "Price Discounts and the Measurement of Inflation: Further Results," Discussion Papers 2016-05, School of Economics, The University of New South Wales.
    4. Diewert, W. Erwin & Fox, Kevin J. & de Haan, Jan, 2016. "A newly identified source of potential CPI bias: Weekly versus monthly unit value price indexes," Economics Letters, Elsevier, vol. 141(C), pages 169-172.

    More about this item

    Keywords

    Cost-of-living; CPI; Regular prices; Retail sales; RYGEKS; Scanner data;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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