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Price Discounts and the Measurement of Inflation: Further Results

Author

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  • Kevin J, Fox.

    (School of Economics, UNSW Business School, UNSW)

  • Iqbal A. Syed

    (School of Economics, UNSW Business School, UNSW)

Abstract

Consumers are very responsive to sales, yet statistical agency practice typically under-weights sale prices in the Consumer Price Index (CPI). Evidence is lacking on the impact on the representativeness of prices included in the CPI and on estimates of inflation. 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 inflation measurement is not significantly affected. In addition, we find evidence that the typical practice of using data from an incomplete period in constructing unit values can lead to an upward bias in the resulting price index.

Suggested Citation

  • 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.
  • Handle: RePEc:swe:wpaper:2016-05
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2016-05.pdf
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Adam Gorajek, 2018. "Econometric Perspectives on Economic Measurement," RBA Research Discussion Papers rdp2018-08, Reserve Bank of Australia.
    3. Glandon, PJ, 2018. "Sales and the (Mis)measurement of price level fluctuations," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 60-77.

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    More about this item

    Keywords

    cost-of-living; CPI; regular prices; retail sales; RYGEKS; RYCCD; scanner data;
    All these keywords.

    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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