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Price Discounts and the Measurement of Inflation

  • 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)

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.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2014-05.pdf
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2014-05.

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Length: 24 pages
Date of creation: Jan 2014
Date of revision:
Handle: RePEc:swe:wpaper:2014-05
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