1 — U.S. BUREAU OF LABOR STATISTICS • bls.gov

Twenty-one years of adjustments 

for quality change in the U.S. 

Consumer Price Index

Brendan Williams

Senior Economist

Consumer Price Index Division

Bureau of Labor Statistics

Prepared for FCSM

October 25, 2022
2 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Overview

 Quality adjustments had a -0.04% impact 

annually

 External previous estimates suggest a larger 

amount of quality bias

 Item replacements have strong, positive 

effects

Broader understanding of the item replacement 

process helps explain this discrepancy
3 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Summary of major findings

Effect Annual impact 

(Dec 1998 – Dec 2019)

Quality adjustment -0.04%

Item replacement 0.63%

Class-mean imputation 0.17%
4 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Item replacement

 Leads to the need for quality adjustment

 Discontinued good replaced with new 

replacement

 Item replacements can be compared, 

adjusted, or imputed 

Class-mean imputation: Imputation by other item 

replacements

Cell-relative imputation: Imputation by other 

items in basic index (deletion method)
5 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Item replacement objectives

 Price change associated with product updates

Usual justification for item replacement

 Quality change

Aspects not captured by match model

 Product cycle effects

 Change in consumer surplus from product 

entry/exit
6 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Hedonic adjustments

 Hedonic indexes expected to approximate 

matched-model behavior

 Selection bias correction

BLS has lacked detailed, timely weights

 Certain forms of hedonics do not capture 

staggered price change/product cycle effects
7 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Counterfactual indexes

 Matched model only (no item replacement)

 No class-mean imputation 

Use cell-relative for all imputations

 No quality adjustment

Convert quality adjustments to comparable or 

non-comparable based on threshold

All quality adjustments converted to comparable
8 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Item replacement counterfactuals (All)
9 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Item replacement counterfactuals (Apparel)
10 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Class-mean imputation candidates

Rank Title Item Replacement 

Impact

1 Baby food 12.48%

2 Motor vehicle insurance 9.46%

3 Other miscellaneous foods 7.28%

4 Breakfast cereal 7.11%

5 College tuition and fees 6.92%

6 Candy and chewing gum 5.80%

7 Frozen noncarbonated juices 5.42%

8 Cakes, cupcakes, and cookies 5.32%

9 Water and sewerage 

maintenance 5.28%

10 Coffee 5.19%
11 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

QA counterfactuals (All)
12 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

QA counterfactuals (Apparel)
13 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Counterfactuals without

quality adjustment (Increases)

Rank Title No QA

(5%)

QA

Type

1 Used cars and trucks 22.21 Cost

2 Wireless telephone services 18.94 Hedonic

3 Cable and satellite television... 16.00 Hedonic

4 Men's shirts and sweaters 6.26 Hedonic

5 New vehicles 4.95 Cost

6 Leased cars and trucks 4.59 Cost

7 Major appliances 3.36 Hedonic

8 Internet services and... 1.80 Hedonic

9 Telephone hardware, calculators... 1.22 Hedonic

10 Televisions 0.97 Hedonic

11 Personal computers... 0.78 Cost
14 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Counterfactuals without

quality adjustment (Declines)

Rank Title No QA

(5%)

QA

Type

1 Women's footwear -16.28 Hedonic

2 Boys' and girls' footwear -7.51 Hedonic

3 Women's outerwear -7.35 Hedonic

4 Men's footwear -6.11 Hedonic

5 Women's suits and separates -5.29 Hedonic

6 Men's suits, sport coats, and outerwear -5.11 Hedonic

7 Boys' apparel -4.41 Hedonic

8 Men's pants and shorts -4.19 Hedonic

9 Women's dresses -4.06 Hedonic

10 Girls' apparel -2.19 Hedonic

11 Photographic equipment and supplies -0.79 Hedonic

12 Other video equipment -0.24 Hedonic
15 — U.S. BUREAU OF LABOR STATISTICS TATISTICS • bls.gov bls.gov

Summary

 BLS quality adjustments have a modest impact 

on the CPI

 Item replacement and class-mean imputations 

have a large impact

 Evidence for product cycles in addition to 

simultaneous product and price updates
16 — U.S. BUREAU OF LABOR STATISTICS • bls.gov

Contact Information

Brendan Williams

Senior Economist

Consumer Prices Division

Office of Prices and Living Conditions

www.bls.gov/cpi

williams.brendan@bls.gov