Comment on “Product Downsizing and Hidden Price Increases: Evidence from Japan's Deflationary Period”

• DOI: http://doi.org/10.1111/aepr.12048
• Published date: 01 January 2014
• Author: Shigenori Shiratsuka
• Date: 01 January 2014

Comment on “Product Downsizing and

Hidden Price Increases: Evidence from

Japan’s Deflationary Period”

Shigenori SHIRATSUKA†

Bank of Japan

JEL codes: E31, C43

In explaining monetary policy to the public, central banks employ price indexes that

cover goods and services consumed by households, especially the consumer price index

(CPI). The CPI, however, is generally thought to overstate changes in the true cost of

living. Accurate price measurement is particularly important in a country like Japan

where CPI inflation is running close to zero.

Shiratsuka (1999) first showed a point estimate of the upward bias in the Japanese

1990 base CPI of 0.9 percentage point. Thereafter, the Japanese CPI introduced various

revisions to improve its accuracy, including the application of hedonic methods for PCs

and digital cameras. Shiratsuka (2006) made a follow-up assessment, suggesting that the

upward bias had substantially narrowed in the 2000 base index.1

Imai and Watanabe (2014) makean impor tant contribution toenhancing our under-

standing of the measurement problem of the Japanese CPI, particularly in relation to

quality adjustments using unit-price changes. By employing daily scanner data for more

than 300,000 products sold at about 200 supermarkets from 2000 to 2012, Imai and

Watanabe show that Japanese consumers tend to respond in parallel to both size/weight

changes and price changes. Imai and Watanabe thus argue that the Japanese CPI may be

downwardly biased rather than upwardly biased, since appropriate adjustments are not

made for the quality downgrade associated with product downsizing.

I would draw different implications from the empirical findings in Imai and

Watanabe (2014). It is possible that the Japanese CPI is downwardly biased because it

fails to reflect hidden price changes in product downsizing, as they discussed. If this is

the case, however, such a bias would be introduced not through the quality adjustment

method, but through the price survey method of “one-specification for one-item.” In

addition, the direction of the bias is uncertain, depending on economic conditions.

The “one-specification for one-item” policy specifies a single and generally the most

popular specification for each item, and continuously surveys the prices of this item.

That policy has an advantage in that monitoring the specification changes for the items

The views expressed here are those of the author and do not necessarily reflect the official views of

the Bank of Japan.

†Shigenori Shiratsuka, Kanazawa Branch, Bank of Japan, 2–3-28, Korinbo, Kanazawa-shi, Ishikawa

920–8678, Japan. Email: shigenori.shiratsuka@boj.or.jp

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doi: 10.1111/aepr.12048 Asian Economic Policy Review (2014) 9, 90–91

© 2014 The Author

Asian Economic Policy Review © 2014 Japan Center for Economic Research

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