Why does the CPI adjust prices for changes in quality?
The CPI measures the average change in price over time of consumption goods and services by following the prices of a representative sample of consumption items in the retail establishments that sell them. A fundamental problem for the goods and services in the CPI sample is that their characteristics, not just their prices, change over time as the retailers introduce new versions of items and discontinue the older versions. In many categories of items, this is the primary time when price change occurs. The new version of the item may provide additional benefits or, in some cases, reduced benefits. This change in benefit is quality change. To measure price change accurately, the CPI must be able to distinguish the portion of price change due to this quality change. The traditional CPI solution to this problem is to temporarily remove an item from the sample when its quality has changed. While this method is sometimes acceptable, it biases the CPI if new version price changes are system
