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Price discounts and the measurement of inflation

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  • Fox, Kevin J.
  • Syed, Iqbal A.

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. Using high-frequency scanner data from US supermarkets we find that the exclusion of sales prices introduces a systematic but stable effect over time so inflation measurement is not significantly affected. We also 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

  • Fox, Kevin J. & Syed, Iqbal A., 2016. "Price discounts and the measurement of inflation," Journal of Econometrics, Elsevier, vol. 191(2), pages 398-406.
    • Handle: RePEc:eee:econom:v:191:y:2016:i:2:p:398-406
    DOI: 10.1016/j.jeconom.2015.12.010
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    Cited by:

    1. Snir, Avichai & Chen, Haipeng (Allan) & Levy, Daniel, 2022. "Zero-Ending Prices, Cognitive Convenience, and Price Rigidity," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 203, pages 519-542.
    2. 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.
    3. Ray, Sourav & Snir, Avichai & Levy, Daniel, 2023. "Retail Pricing Format and Rigidity of Regular Prices," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-1.
    4. Fei, Liguo & Wang, Yanqing, 2022. "Demand prediction of emergency materials using case-based reasoning extended by the Dempster-Shafer theory," Socio-Economic Planning Sciences, Elsevier, vol. 84(C).
    5. Adam Gorajek, 2018. "Econometric Perspectives on Economic Measurement," RBA Research Discussion Papers rdp2018-08, Reserve Bank of Australia.
    6. 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.
    7. Diewert, W. Erwin & Fox, Kevin J. & de Haan, Jan, 2016. "A newly identified source of potential CPI bias: Weekly versus monthly unit value price indexes," Economics Letters, Elsevier, vol. 141(C), pages 169-172.
    8. de Haan, Jan & Diewert, W. Erwin & Fox, Kevin J., 2015. "Weekly versus Monthly Unit Value Price Indexes," Economics working papers erwin_diewert-2015-15, Vancouver School of Economics, revised 20 Jul 2015.
    9. 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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