Measuring consumer inflation in a digital economy

Abstract

The effect on the household consumption price index from possible sources of error in capturing digital products depends on the weight of the affected products. To calculate upper bounds for this effect, we apply weights based on the average structure of household consumption in OECD countries to a maximum plausible overstatement of price change for each affected or potentially affected product. The products account for about 35% of household expenditure in 2005, declining to 32% in 2015. The upper bound simulation effect on the growth rate of the consumption deflator is somewhat less than –0.6 percentage points in 2015 – large enough to improve the picture of GDP and productivity growth in advanced economies. However, this would not overturn the conclusion that productivity growth has slowed substantially compared over the past decades.