The Consumer Price Index: Recent Developments

The 2004 International Labour Office Consumer Price Index Manual: Theory and Practice summarized the state of the art for constructing Consumer Price Indexes (CPIs) at that time. In the intervening decade, there have been some significant new developments which are reviewed in this paper. The CPI Manual recommended the use of chained superlative indexes for a month to month CPI. However, subsequent experience with the use of monthly scanner data has shown that a significant chain drift problem can occur. The paper explains the nature of the problem and reviews possible solutions to overcome the problem. The paper also describes the recently developed Time Dummy Product method for constructing elementary index numbers (indexes at lower levels of aggregation where only price information is available).