bank of japan presents the summary of an article published in the august edition of its quarterly bulletin bank of japan communication, 31 / 8 / 98. release of a reference wholesale price index using a geometric mean formula introduction in recent years, concern about the accuracy of price statistics has risen in industrialized countries where the statistical bias in price indexes seems to have grown significantly while actual prices have generally been stable. 1 the bank of japan has worked to improve the accuracy of its wholesale price index ( wpi ) over the years, but many problems remain to be solved. 2 one such issue is the formula used for calculating the index. recently, the bank decided to publish a reference wpi using a geometric mean formula ( wpi - ugm ) in addition to the conventional index using arithmetic mean method ( laspeyres index ). although the new formula may not succeed in removing the bias in the current index, the bank considers that by publishing more data, it can provide users with more information about the possible measurement bias in the present wpi. in the united states, a report titled “ toward a more accurate measure of the cost of living ” was submitted to a senate committee in december 1996 by the advisory commission to study the consumer price index ( boskin commission ). this report triggered a series of controversies over the accuracy of the consumer price index ( cpi ). chairman alan greenspan of the federal reserve board has frequently made references to this issue. in germany, the bundesbank published a discussion paper in march 1998 titled “ problems of inflation measurement in germany : non - technical summary ” ( hoffmann [ 1998 ] ). in japan, too, a paper was published concerning the problem of cpi measurement errors ( in japanese, shiratsuka [ 1995 ] ). in general, problems with the accuracy of price indexes can result from ( 1 ) factors relating to the formulae used to calculate indexes, as discussed in this paper ; ( 2 ) failure to adapt statistical samples properly to reflect changes in consumer preferences and distribution channels ; and ( 3 ) failure to make appropriate adjustments for changes in quality of goods and services. in order to deal with ( 2 ) and ( 3 ), the bank revises the weights of goods based on expenditure on individual items ( expenditure shares ) every five years, reviews and replaces individual items in the basket when necessary, and makes an adjustment for quality changes between old and new items at the same time. quality adjustment for such goods as personal computers is made by applying

slack has been absorbed. the spread of the omicron variant was a tough way to start the year, with 200, 000 jobs lost in - 7january — mostly among the same services sector workers who have borne the brunt of pandemic layoffs all along. but other data have generally been robust, and with public health restrictions now easing, we expect strong growth to resume. with the economy just back to its potential output, the elevated inflation we are experiencing today is not the result of too much demand in the economy. but if we look ahead, with slack absorbed and considerable momentum in demand, we need higher interest rates to dampen spending growth so that demand does not run significantly ahead of supply. in practice, the three key elements driving inflation are interacting to push inflation up. but raising the policy rate will not fix supply chain disruptions, nor will it lower oil prices. what monetary policy can do is make borrowing more expensive, which slows domestic demand. for households and businesses that are already feeling the pinch of inflation, the higher cost of borrowing can be doubly painful. but tighter monetary policy is necessary to lower the parts of inflation that are driven by domestic demand. tightening monetary policy is also needed to keep inflation expectations well anchored and to limit the broadening of inflationary pressures so that inflation falls back as supply disruptions ease. these three elements of the inflation story all weighed on our monetary policy decision announced yesterday. we expect inflation to come down in the second half of this year as the pandemic eases. but with inflation substantially above our target, we are more concerned about the upside risks to our inflation outlook. the broadening of price increases is making inflation harder to avoid and raises the risk that inflation expectations could drift higher. and with slack now absorbed, the momentum in demand means that monetary policy has a clear role to play in getting inflation back to our target. against this backdrop, yesterday the governing council took the first step on the path to higher interest rates, raising our policy rate by 25 basis points to half a percent. this takes our policy rate off its effective lower bound for the first time since the end of march of 2020 — almost two years. we will also be considering when to end the reinvestment phase of our large - scale asset purchases and allow our holdings of government of canada bonds to begin to shrink. the impact of raising our policy rate will be higher interest rates for canadian households and businesses, including many mortgage and prime