Is there a quality bias in the Canadian CPI? Evidence from microdata

Abstract

Rising consumer prices may reflect shifts by consumers to new higher‐priced products, mostly for durable and semi‐durable goods. I apply Bils’ (2009) methodology to newly available Canadian consumer price data for non‐shelter goods and services to estimate how price increases can be divided between quality growth and price inflation. I find that less than one third of observed price increases during model changeovers should be attributed to quality growth. This implies overall price inflation close to inflation measured by the official index. I conclude that, according to Bils’ methodology, the quality bias is not an important source of potential mismeasurement of CPI inflation in Canada.

On the evolution of the United Kingdom price distributions

“…Understanding the evolution of the joint dynamics of micro-level prices is of first-order importance for economists. A voluminous literature in this area is represented by papers including inter alia Bils and Klenow (2004), Dhyne et al (2006), Klenow and Kryvtsov (2008), Nakamura and Steinsson (2008), Gagnon (2009), Klenow and Malin (2010), Kryvtsov (2016), and Kryvtsov and Vincent (2017). Since inflation measures a change in the price level for goods and services sold by retailers across the country, inflation dynamics depend on how individual retailers set and change their prices across time, and on how price behavior across retailers balances out the economy-wide scale.…”

Quality and Price Setting of High-Tech Goods

“…Finally, this study is related to the strand of literature that focuses on constructing hedonic price indices (see e.g., Shiratsuka, 1999;Kryvtsov, 2016;Byrne et al, 2020), especially for computing devices (e.g., Pakes, 2003;Aizcorbe et al, 2020) and computer components (e.g., Byrne et al, 2018). We complement this strand of literature by introducing an improved, direct measure of product quality for a larger set of CPUs to construct the quality-adjusted price indices.…”

Quality and price setting of high-tech goods

“…Finally, this study is related to the strand of literature that focuses on constructing hedonic price indices (see e.g., Shiratsuka, 1999;Kryvtsov, 2016;Byrne et al, 2020), especially for computing devices (e.g., Pakes, 2003;Aizcorbe et al, 2020) and computer components (e.g., Byrne et al, 2018). We complement this strand of literature by introducing an improved, direct measure of product quality for a larger set of CPUs to construct the quality-adjusted price indices.…”