As we discuss in Macroeconomics, Chapter 9, Section 9.4, (Economics, Chapter 19, Section 19.4) in calculating the consumer price index (CPI) each month, the Bureau of Labor Statistics sends hundreds of employees to gather price data from stores and offices. A reporter for the Wall Street Journal followed a price checker as she visited an auto-repair shop, a grocery store, and other businesses.
The article provides an excellent discussion of the care with which prices are collected, particularly with respect to making sure that the prices are for the same good or service each month. For instance, while in a grocery, the price checker almost made the mistake of recording the price of a can of low sodium chicken noodle soup, rather than the price of regular chicken noodle soup as in previous months.
At one point, the price checker noted that the price of clementines had been increasing rapidly and remarked that when buying fruit for her own family “We need to pick a less expensive fruit.” Switching from buying a fruit, in this case clementines, with a price that is increasing rapidly to a fruit with a price that is increasing more slowly, say regular oranges, is an example of the substitution bias. That’s one of the four biases discussed in Section 9.4 that can cause the measured increase in the CPI to overstate the true rate of inflation.
The article can be found here. (A subscription may be required.)
Source: Rachel Wolfe, “How the Inflation Rate Is Measured: 477 Government Workers at Grocery Stores,” Wall Street Journal, May 10, 2022.