Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Tuesday, December 21, 2004

Yet Another Upward Bias in the CPI

We all know (or should) that the CPI is biased upward because it overlooks new products and product improvements. Now, Kevin at Truck and Barter summarizes a recent NBER study of another CPI measurement bias by Hausman and Leibtag, "...Does the BLS know that Walmart Exists?"

It seems that in the U.S., prices are measured by the BLS at standard stores, not at Walmart supercentres, despite the growth of the supercentres. Of course, as supercentres expand, and standard stores lose business, average prices actually paid by customers are not rising as fast as the CPI would indicate. The mechanism is complex, but this bias adds between .32 and .42 to the food price component of the CPI.

I wonder if the same biases exist in Canada.
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