Price Indexes (4) Scope of Measurement

Most price indexes measure the change in the price for a fixed basket of goods and services, because that is all that can be measured. Because the world is not static, this means that the price index will not a perfect reflection of Statisticians are generally clear about this, and they focus their energies on measuring what the index purports to measure accurately, rather than trying to measure something else. This is why the matched sample is important. Price statisticians put a lot of effort into ensuring that the basket of goods and services is the same in each period.

If the quality of the goods or services being surveyed is allowed to change from period to period, the index will no longer be measuring a fixed basket and no one will no what it is measuring.

For example, a CPI measures the change in price of the goods and services that households buy. It does not purport reflect the experience of any household, because everyone is different. It cannot measure the true cost of living, whatever that is. All it is designed to do is measure the change in prices of the goods and services that households buy. People do not need to use this measure if they do not like what it measures, but it should not berated because it does not measure something that cannot be measured. I do not take my new car to the dump, because it cannot fry eggs.