In 1997 a commission charged with determining the accuracy of the U.S. Consumer Price Index concluded that it may be overstating inflation by 1.1 percent or more annually. The question is significant, because Social Security benefits, federal income-tax brackets and countless wage contracts are tied to inflation.
The main contention of the Boskin commission report named after its chairman, Stanford economist Michael Boskin was that the Labour Department’s statistical experts did not fully take into account the improved quality of many products whose prices were used to measure inflation.
Now a new study, undertaken by a panel of 13 economists headed by Charles Schultze of the Brookings Institution, says that such estimates are difficult to make and easy to exaggerate and finds many holes in the Boskin analysis.
The panel recommends a conditional cost of living index that is relatively unambiguous, including quality adjustments but leaving out such elusive factors as traffic congestion, environmental degradation and consumer expectations.
However, it makes no precise estimates of whether the CPI overstates or understates the true rate of inflation.
Source: Jeff Madrick (Challenge Magazine), Economic Scene: A New Study Questions How Much Anyone Really Knows About the Real Rate of Inflation in the U.S., New York Times, December 27, 2001.
For text http://www.nytimes.com/2001/12/27/business/27SCEN.html
For more on Inflation estimates http://www.ncpa.org/iss/eco/
FMF 02/01/02
