Fixed Basket Methods for Compiling Consumer Price Indexes
Paul A. Armknecht

This article briefly presents the background and concerns that led to the development of two technical volumes related to the production of the CPI and the most common fixed basket approaches statistical offices use to compile the CPI. The article demonstrates the application formulas of both long-term and short-term price changes for fixed basket indexes. It also corrects the calculations and conclusions of a previous article by Msokwa in this journal. The article concludes that both the long-term and short-term (modified) Laspeyres price index formulas provide the exact same index values when properly calculated. The more serious issue with fixed basket approaches occurs when the elementary (first level) price indexes are calculated using unweighted averages. In such cases, geometric averages should be employed rather than arithmetic averages.

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