Briefly explain the problems during the construction of a consumer price index (CPI)

In theory, constructing a CPI is simple but there are the following practical problems:

  • The choice of a base year
  • The selection of a representative basket of goods
  • The weighting to the selected items
  • No consideration given to the quality of the item
  • Problem with the accuracy and reliability of data supplied
  • Problem with the practical problems of collecting, collating and compiling data and the question of the appropriate statistical model

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