Consumer Price Indices – What is the question?

Abstract

Consumer price indices have many and diverse uses. They are needed, in the first place, to study the development of prices, secondly, for indexation, especially of wages and other income flows, and thirdly to compile estimates of consumer expenditure and of retail sales in constant prices.

The use to be made of the indices should help determine the type of index computed. Thus when defining which concept of consumption should be embodied in the consumer price index, it may be felt that the first and second uses require measurement of changes in currency value over time, thus relating to purchases. But acquisitions or use could also furnish a basis for the index. In any case, the question still arises, which consumption components should be excluded. Problems discussed in this connection are the inclusion or exclusion of investments and savings, gifts and contributions, second-hand purchases, illegal prices and consumption, insurance, other financial services and overseas expenditures. A major problem is the treatment of owner-occupied dwellings, where eight alternatives, each answering different questions, are distinguished.