A Consumer Price Index for the 21st Century

Press Release by the National Academies of Sciences, Engineering, and Medicine: “The Bureau of Labor Statistics (BLS) should undertake a new strategy to modernize the Consumer Price Index by accelerating its use of new data sources and developing price indexes based on different income levels, says a new report from the National Academies of Sciences, Engineering, and Medicine.

The Consumer Price Index is the most widely used measure of inflation in the U.S. It is used to determine cost-of-living allowances and, importantly, influences monetary policy, among many other private- and public-sector applications. The new report, Modernizing the Consumer Price Index for the 21st Century, says the index has traditionally relied on field-generated data, such as prices observed in person at grocery stores or major retailers. These data have become more challenging and expensive to collect, and the availability of vast digital sources of consumer price data presents an opportunity. BLS has begun tapping into these data and has said its objective is to switch a significant portion of its measurement to nontraditional and digital data sources by 2024.

“The enormous economic disruption of the COVID-19 pandemic presents a perfect case study for the need to rapidly employ new data sources for the Consumer Price Index,” said Daniel E. Sichel, professor of economics at Wellesley College, and chair of the committee that wrote the report. “Modernizing the Consumer Price Index can help our measurement of household costs and inflation be more accurate, timelier, and ultimately more useful for policymakers responding to rapidly changing economic conditions.”..
The report says BLS should embark on a strategy of accelerating and enhancing the use of scanner, web-scraped, and digital data directly from retailers in compiling the Consumer Price Index. Scanner data — recorded at the point of sale or by consumers in their homes — can expand the variety of products represented in the Consumer Price Index, and better detect shifts in buying patterns. Web-scraped data can more nimbly track the prices of online goods, and goods where one company dominates the market. Permanently automating web-scraping of price data should be a high priority for the Consumer Price Index program, especially for food, electronics, and apparel, the report says.

Embracing these alternative data sources now will ensure that the accuracy and timeliness of the Consumer Price Index will not be compromised in the future, the report adds. Moreover, accelerating this process will give BLS time to carefully assess new data sources and methodologies before taking the decision to incorporate them in the official index….(More)”