Price-updating of weights in the CPI

On the basis of the CPI Manual the paper discuss the issue of price-updating of expenditure weights for the regular calculation of the CPI. In the first sections the decision of how to calculate the CPI is considered as a three-step procedure: From the purpose of the index to the definition of an ideal or target index, and the decision of which formula to apply for the ongoing calculation of the monthly CPI. In practice most, if not all, countries calculate the ongoing CPI as an arithmetic expenditure weighted average of the elementary aggregate indices, applying weights from a past reference period. In this context it is argued that the question of whether to price-update the expenditure weights or not is important for the interpretation of the CPI and may have significant influence on the measured rate of price change. The question of price-updating is discussed by use of the Lowe and Young indices introduced in the CPI Manual. The main findings are summarized in the conclusion in the last section of the paper.