Question

CPI data is provided by government agencies give a true picture about inflation and Agree/Disagree. Why/Why not? Give a brief explanation

Answer 1

In my opinion CPI data as given by government agencies does not provide a true picture about inflation; and it overestimates the U.S. inflation rate. The CPI does not take into consideration the quality improvement when looking at the increasing prices of most goods, thus is quality biased. Furthermore does not recognize reduction in prices due to expansion of discount outlet chains, thus is outlet biased. Moreover does not include household purchases of imports from other nations and purchase of used goods. Also the new technologies are usually introduced into the BLS market basket only after a lag. Thus in my opinion there is upward bias in the CPI.