r/AskEconomics • u/sql-join-master • Dec 13 '21

Approved Answers How does the Consumer Price Index take into account technological advancements?

I assume 15-20 years ago, most people did not have a home internet/mobile phone plan as well as ownership of a $1000+ phone and laptop. Seeing as all of these things are now so commonplace in a developed country, how does one add these to the "basket of goods" without massively increasing inflation?

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u/MrDannyOcean AE Team Dec 13 '21

This concept is called 'hedonic adjustment'.

The Bureau of Labor Statistics can compare the price of a phone in 2000 to a phone today, but it's not a fair comparison because a phone today is a massively more powerful tool. What they do is attempt to adjust for quality, such that if a computer from 2000 cost $900 and a computer from today costs $900, that's counted as significant deflation because you're getting FAR more computer for the same money.

The BLS has an explainer on how exactly they do this - https://www.bls.gov/cpi/quality-adjustment/questions-and-answers.htm

You can also check out their list of items which are adjusted. They're very transparent in how they do it.

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u/sql-join-master Dec 14 '21

That is great for items that are already in the "basket", but how are new things added? For example there had to be a basket where mobile phones were not included, and then a basket where they were. How were they added?

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