The CPI is a commonly used and closely watched measure of inflation. However, it has limitations. What are they?

What will be an ideal response?

Economists maintain that the CPI, which is a common measure of inflation, overstates the true rate of inflation by as high as one percentage point per year. This is primarily due to the fact that the CPI is measured using a fixed basket of goods. The bias in the CPI arises from several sources. First, consumers' buying patterns change, and in particular, consumers can substitute away from higher priced goods towards less expensive substitutes. A second source of bias arises from the fact that quality improvements are not always adjusted for, so what looks like a higher price may simply be an improvement in quality.