This chapter addresses the practical challenges in constructing consumer price indexes (CPIs), using the US CPI by the Bureau of Labor Statistics (BLS) as a case study. It begins with an overview of the conceptual issues, focusing on the choice between cost-of-living indexes (COLI) and cost-of-goods indexes (COGI), and their implications for scope and population coverage. The chapter details the methodologies for pricing durable goods, population coverage, and weighting and estimation strategies, highlighting the two-stage aggregation approach adopted by the BLS. It discusses sampling strategies for geographic regions, items, and outlets, addressing limitations such as data availability and collection costs. The chapter also explores traditional and alternative data collection methods, including web-scraping and transaction databases, and their advantages and challenges. Finally, it delves into the complexities of quality adjustment and the handling of missing prices, emphasizing the need for explicit quality adjustments in the face of product changes. The chapter concludes with an evaluation of the evolving challenges and improvements in CPI methodologies, noting the ongoing decline in survey response rates and the increasing importance of accurately pricing services and digital goods.
