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Understanding Price Variation Across Stores and Supermarket Chains: Some Implications for CPI Aggregation Methods


  • Note: The authors gratefully acknowledge constructive comments on a very preliminary draft from participants at the Economic Measurement Group Workshop ‘07, financial support from the Australian Research Council (LP0347654 and LP0667655), provision of the dataset by the Australian Bureau of Statistics, and very helpful comments from two anonymous referees.


The empirical literature on price indices consistently finds that aggregation methods have a considerable impact, particularly when scanner data are used. This paper outlines a novel approach to test for the homogeneity of goods and hence for the appropriateness of aggregation. A hedonic regression framework is used to test for item homogeneity across four supermarket chains and across stores within each of these supermarket chains. We find empirical support for the aggregation of prices across stores which belong to the same supermarket chain. Support was also found for the aggregation of prices across three of the four supermarket chains.