High inflation, seasonal commodities, and annual index numbers

This paper studies the problems of measuring economic growth under conditio ns of high inflation. Traditional bilateral index number theory implicitly assumes that variations in the price of a commodity within a period can be ignored. To justify this assumption under conditions of high inflation, the accounting period must be shortened to a quarter, a month, or possibly a w eek. However, once the accounting period is less than a year, the problem o f seasonal commodities is encountered; i.e., in some subannual periods, man y seasonal commodities will be unavailable and hence the usual bilateral in dex number theory cannot be applied. The paper systematically reviews the p roblems of index number construction when there are seasonal commodities an d high inflation. Various index number formulas are justified from the view point of the economic approach to index number theory by making separabilit y assumptions on consumers intertemporal preferences. We find that accurate economic measurement under conditions of high inflation is very complex.