Question

Why is it important that national statistics authorities regularly monitor and change the basket of goods used to measure the CPI?

Answer 1

Answer) Adjustment is to help ensure that the basket is as representative as possible in terms of assessing the impact of changing prices on the cost of living. Updating the basket is essential in order to reflect constantly changes tastes and trends. Although kept constant within year, the contents of the consumer price inflation basket of goods and services and their associated expenditure weights are updated annually. This is important in helping to avoid potential biases that might otherwise develop over time – for example, due to the development of entirely new goods and services, or the tendency for consumers to move away from buying goods and services that have risen relatively rapidly in price and to goods and services whose prices have fallen. For example, if the price of tea rose dramatically during one year, consumers might switch their spending towards coffee, making it necessary to adjust the expenditure weights accordingly in the following year.