Cellular Telephone, New Products, and the CPI

Abstract

Since their introduction in 1983, cellular telephones' adoption has grown at 25%–35% per year. At year end 1997, about 55 million cellular telephones were in use in the United States. The Bureau of Labor Statistics (BLS) did not know that cellular telephones existed, at least in terms of calculating the Consumer Price Index (CPI), until 1998 when they were finally included in the CPI. Omitting cellular telephones from the CPI created a significant bias. I estimate a bias in the BLS estimate of the telecommunications-services index of between .8%–1.9% per year because of the omission of the cellular telephone. Rather than telecommunications-service prices increasing at about 1.1% per year, the correct calculation has them decreasing at about .8% per year. Omission of new goods from the CPI, for significant periods of time, leads to important bias in the calculation of the CPI.

KEY WORDS:

• Consumers surplus
• Consumer welfare
• Price index