Is there a quality bias in the Canadian CPI? Evidence from microdata

In: The Canadian journal of economics: the journal of the Canadian Economics Association = Revue canadienne d'économique, Volume 49, Issue 4, p. 1401-1424

Abstract

AbstractRising consumer prices may reflect shifts by consumers to new higher‐priced products, mostly for durable and semi‐durable goods. I apply Bils' (2009) methodology to newly available Canadian consumer price data for non‐shelter goods and services to estimate how price increases can be divided between quality growth and price inflation. I find that less than one third of observed price increases during model changeovers should be attributed to quality growth. This implies overall price inflation close to inflation measured by the official index. I conclude that, according to Bils' methodology, the quality bias is not an important source of potential mismeasurement of CPI inflation in Canada.