Price Indices Rekindled, 1970s–1990s: Theory and Practice at Cross Purposes?

Abstract

This paper revisits the discussions on price indices during a period marked by theoretical advancements and practical challenges in measuring inflation. Index-number theorists sought to improve accuracy, yet national statistical offices largely maintained established practices due to concerns over data availability, stability, and public trust. The paper explores key contributions, including the Boskin Commission's findings on biases in the consumer price index (CPI) and the role of international guidelines in shaping practice. Despite significant theoretical progress in areas such as substitution effects, quality change, and data collection, methodological conservatism persisted. The study highlights the complex interplay between economic theory, statistical methodology, and political considerations in the construction of price indices, emphasizing that while accuracy is paramount in theory, pragmatism often dictates practice. This paper makes a contribution to the existing literature by integrating a theoretical survey with an examination of the political economy of measurement inertia.