It conducted no original research. Instead, it used rough rules of thumb to reach its conclusions. Each provides some basis for claiming the index overstates inflation. Substitution Effects . This is the most frequently cited source of bias, perhaps because so many reporters learned about it in their introductory economics classes.
Most goods have close substitutes.
The CPI measures the prices of a fixed basket of goods and services. When the price of some goods in this basket rises temporarily, thrifty consumers shift to substitutes. By holding the basket fixed, the CPI then overstates the true increase in the cost of living for most consumers. This is a fair criticism. However, most studies that have tried to measure the size of this bias find it to be very small, between 0.1 percent and 0.2 percent annually.