Tuesday, November 12, 2013

The Making of the CPI

The Washington Post's Emily Wax-Thibodeaux follows Caren Gaffney, one of the BLS' "Economic Assistants" who gather the raw data for the consumer price index:
On this recent day, Gaffney will be on the road for nearly eight hours in her beat-up 2003 Honda Pilot, driving across vast stretches of Virginia, from county to county, on a mission to hunt down prices of three American staples: gas, sugar and beer.
As Gaffney demonstrates at stop after stop, there’s more to price checking than tallying up numbers.
“A good EA is face to face with the product, is picking things up, is looking at every label,” she says. “The tiniest mistake can throw off the data. You have to be on your feet mentally.”
To ensure the integrity of the information, price checkers have to make sure they’re comparing not just apples with apples but also, for instance, organic Fuji apples with organic Fuji apples.
As the story notes, the process is labor-intensive (there are 428 economic assistants roaming the country) which means that the cost of constructing the CPI should rise over time relative to goods and services subject to more efficiency gains - i.e., Baumol's cost disease applies.  But good data is undoubtedly worth it.

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