CPI – In Depth Barnett UHS AP Econ

Problems with the CPI

Problems with the CPI (cont’d) Quality changes. The CPI does not take into account that sometimes the quality increase is much greater than the increase in price. For example, the first year cars came equipped with standard airbags, the average price of a car rose several hundred dollars, but the quality improvement was worth more than that.

Problems with the CPI (cont’d) New Goods. There are some 207 categories of goods in the CPI. If a new technology is introduced into the market but doesn’t fit into any category, it will be excluded from the CPI until the next time the basket is updated—every 10 years. Cell phones, for example, were still not in the CPI in the late 1990s. So the CPI may not show the most current goods available.

Problems with the CPI The basket doesn’t always reflect the goods and services used by a particular group. For instance, how might the market baskets differ for a population of 17 year olds from that of 67 year olds? Could one group reasonably complain that inflation for them is higher than what the CPI indicates?