Biasing Factors of the Consumer Price Index

Studies conducted in the United States came to the conclusion that the annual average inflationary rate of 3 percent measured during the interval beginning in the early 1990's through the mid-1990's overestimates by 1.1 percentage points the changes in the cost of living. As a result, throughout the world, not just in the United States, many countries are reconsidering the supposed bias of the Consumer Price Index, its consequences, and consequences related to economic decision making. The purpose of this study is to analyze in detail the biasing factors theoretically occurring during the calculation of the Consumer Price Index, based on international literature, and the possible outcome of such biases. Out of biasing factors substitution effect empirically is investigated on Hungarian data.