The Price Statistics of the Federal Government: Review, Appraisal, and Recommendations; a Report to the Office of Statistical Standards, Bureau of the Budget, Together with Twelve Staff Papers

The Price Statistics of the Federal Government: Review, Appraisal, and Recommendations; a Report to the Office of Statistical Standards, Bureau of the Budget, Together with Twelve Staff Papers

The Price Statistics of the Federal Government: Review, Appraisal, and Recommendations; a Report to the Office of Statistical Standards, Bureau of the Budget, Together with Twelve Staff Papers

The Price Statistics of the Federal Government: Review, Appraisal, and Recommendations; a Report to the Office of Statistical Standards, Bureau of the Budget, Together with Twelve Staff Papers

Excerpt

Every observer of the price statistics area must be impressed with the extent to which the leading indexes are becoming institutionalized. The CPI is becoming an integral part of the area of collective bargaining, through its extensive use in wage escalation. The WPI is receiving an increasing role in business contracts covering even fairly short periods of time. The Indexes of Prices Paid and Received by Farmers are at the foundation of agricultural price-support policies of the Federal Government.

Such a development is of course inevitable in an inflation-conscious age--after all, price indexes are made to be used. There is, however, a growing threat to the maintenance of the scientific quality of the indexes arising out of their use in private contracts and public policy. The important legal commitments which rest on the indexes normally lead the parties to press for strict comparability in the concepts and procedures employed in compiling the index. This attitude is easily comprehended: if the indexes are revised with the effect of costing one party to a commitment a large sum of money, the index appears to be contributing its own statistical uncertainties rather than removing those in the dollar quantities to which it is applied.

But this demand for strict comparability is shortsighted even from the viewpoint of the parties who use the indexes for legal commitments. It would be unwise to contract for 20 years with a person to be supplied with a 1960 automobile if one wished a given type of transportation: the strict "comparability" of the identical automobile over time would not conceal its increasing decrepitude. Index numbers also deteriorate with age--and often no less rapidly than automobiles. Strict comparability in the items priced and the weights assigned to commodities can be achieved only at the cost of making an index number increasingly obsolete. It would be possible to make up a consumer price index, for example, that priced only goods that were very similar in 1930 and 1960, but it would have to disregard the majority of the goods consumed in either year, and its course over time would be a mere caricature of the movements of a good consumer price index.

The periodic revision of price indexes, and the almost continuous alterations in details of their calculation, are essential if the indexes are to serve their primary function of measuring the average movements of prices. The users of the data--scientific as well as business or governmental--are entitled to responsible behavior on the part of the price collection agencies, and responsible behavior forbids frequent minor changes in methods and concepts. But they are not entitled to a hollow rigidity of form which deprives the indexes of their relevance. Responsible behavior in the calculations of the indexes consists primarily in presenting the indexes which, within the limits of the agency's powers, best measure the changes in the price of whatever the indexes seek to measure.

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