In a December 1996 report to the Senate Finance Committee, an advisory commission headed by Stanford economist Michael Boskin concluded that the CPI overstates inflation by 0.8 to 1.6 percentage points per year with 1.1 percentage points per year being the best estimate. But consumers don't purchase the same selection of goods every year, or even every month. When prices change, consumers change their consumption choices. Consumers switch between narrowly defined item categories, e.g. , from Granny Smith to Delicious apples, as well as between broader groups, e.g. , from apples to shirts. The Boskin Commission estimated that the CPI's inability to capture these changes causes the CPI to be overstated by 0.4 percentage points per year.
Consumers also change where they buy goods and services.
In recent years, households have reduced the impact of rising prices by switching to discount retailers. The Boskin Commission estimated that the CPI's failure to capture this change results in an upward bias of 0.1 percentage points per year. For example, the quality of home computers has risen dramatically, even as prices have fallen. The true cost of a computer, adjusted for this change in quality, has fallen even more quickly. Thus, the CPI has missed all of the rapid price decline in cellular phones over the last decade.