Problems with CPI

CPI – In Depth
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
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?