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Activity Number: 437
Type: Contributed
Date/Time: Tuesday, August 2, 2016 : 2:00 PM to 3:50 PM
Sponsor: Business and Economic Statistics Section
Abstract #319595 View Presentation
Title: Breaking Down the Differences Between the CPI-U and C-CPI-U: Weights vs. Formula and by Items and Areas
Author(s): Gregory Kurtzon*
Companies: Bureau of Labor Statistics
Keywords: Consumer Price Index ; CPI ; Price Level ; Inflation ; Cost of Living ; Price Indexes

A large economics literature has debated the best formula to estimate a cost-of-living index (COLI), and this study shows that formula may not be relevant for many purposes if current weight information is properly used. The large majority of the difference between the levels of the CPI-U and the generally lower C-CPI-U (estimating a COLI) is due to the CPI-U weights holding quantities constant over long periods, rather than the difference in formula and the assumptions therein. A new method to avoid chain drift is developed, appropriate for this data. Also, a method is presented for decomposing the difference by item and area, with technologically changing and inelastically demanded items influencing the difference the most.

Authors who are presenting talks have a * after their name.

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