Having an informed debate over Hedonic Quality Adjustments is difficult due to the lack of comparable consumer price indices. A few exist, however, andtoday we will look at an index compiled by PriceStats, an off-shoot of MIT’s Billion Prices Project, which scrapes the internet for prices and compiles a daily index that aims to track inflation in real-time.
The time series eschews hedonic and seasonal adjustments and relies on sampling over 5 million products to produce a very different look at inflation (CPI included for comparison):
Since starting calculation of the index in mid-2008, PriceStats inflation series has remained consistently above the CPI as reported by the BLS. Considering the differences in methodology this provides an estimate to how much Hedonic Quality Adjustments have been used to understate the head-line CPI figures. Currently, the CPI uses quality adjustments on over 32% of the items used in its calculation.
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