Does the French Consumer Price Index overstate inflation? - ARCHIVED
Articles and reports: 62F0014M19970103363Description: The debate over problems in measuring inflation is not new. It has recently been revived by the publication of a report by an Advisory Commission to the U.S. Senate. The Commission, chaired by Michael J. Boskin, found that the U.S. Consumer Price Index (CPI) overestimates inflation by 1.1 percentage points a year. This article shows that the potential bias in the French CPI is on a far lower order of magnitude. It is hard to summarize the changes in a multitude of prices with a single figure. Even in the best-case theoretical scenario - a single consumer faced with a spending decision - the treatment of substitutions between existing products raises important problems. Nevertheless, it is possible to provide a fairly accurate description of the various possible alternatives and the statistical procedures used in France largely shield the country's index from criticism on this point. The introduction of new products creates serious difficulties that have not been entirely resolved in the United States, in France, or elsewhere: "new products" is used here in the broad sense to denote (1) genuinely new products on the market and (2) products already sold elsewhere but introduced in a new sales outlet, replacing existing products or not. The Boskin Commission estimates the upward bias in the U.S. CPI due to new products at 0.6 percentage points per year. The Commission's claim rest on fragile and probably exaggerated estimates. Our conclusion converges with the opinion of several U.S. statisticians.Issue Number: 1997010Frequency: UnknownAuthor(s): Lequiller, FrançoisMain Product:Prices Analytical Series
