Hey guys,
I just don’t get it.
I do get that not adjusting for change of quality is biasing the index (as goods improve in quality, they become more expensive, but this is not inflation).
I also do get that people escaping to cheaper substitutes overstates the index, since we keep the same basket as the base year, and we do not include the substitution effect on quantities (buying less apples for oranges if apples become more expensive than oranges).
But i don’t seem to get why new goods will inflate the index… We’re working with an old basket of goods that do not include new goods. New goods being expensive has thus no effect on the index.
Or maybe i’ve missed something?
Thank you guys!