Systems of price indices and supporting frameworks

Abstract

Price indices serve many different purposes and their definition, coverage and construction depends on the precise use for which they are being constructed. Once constructed however their use is frequently extended to other areas. For example, a consumer price index may be designed as an inflation target, a measure of price stability or a compensation index, but may also be used as a deflator. Usually the original use will determine which particular agents the index covers, which range of goods and services are covered and the way in which prices are measured and the index constructed. However key economic concepts such as productivity and welfare are residuals derived by subtracting a series from a first deflated number. Inappropriate use of price indices will render such measures meaningless.

This paper reviews the systems of price indices and the supporting frameworks which facilitate the process of identifying and defining in statistical terms user needs for price indices and making best use of all the prices collected. Whilst the paper considers price indices in general its focus is on consumer price indices.