The bias in the CPI typically
A) overstates inflation.
B) understates inflation.
C) about half the time overstates and about half the time understates the inflation rate.
D) cannot be measured or estimated.

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) typically overstates inflation due to several biases, such as substitution bias, where consumers change their purchasing habits when prices change, but the CPI basket does not adjust quickly enough.

The Bias in the CPI Typically