‘NUMBERS FOR GDP, INFLATION ARE OFF’

Measurement tools understating growth, say US agencies

WASHINGTON

TOP officials from two United States government economic-statistics agencies say their measurement tools are understating growth and overstating some components of inflation by modest amounts, while cautioning that this does not explain the sluggish expansion in recent years.

“The Bureau of Labour Statistics and Bureau of Economic Analysis agree that price index mismeasurement continues to lead to understated growth in re- al output over time,” wrote five current and former officials from the agencies in a paper published on May 3 in the American Economic Association’s Journal of Economic Perspectives and presented last week.

Economists have questioned whether agencies are keeping up with changes resulting from an increasingly digitised and innovation-based economy.

The answer: It’s hard, especially in technology and medical services where innovations can be rapid and the results hard to capture. Healthcare spending represented about 17.5 per cent of gross domestic product (GDP) in 2014, they noted.

Looking at the personal consumption component of GDP, the authors find that price measures likely show an overstatement of 0.2 percentage points in 2000, rising to 0.26 percentage points in 2015. If inflation is overstated, real GDP is understated.

Combined with some mismeasurement of quality changes in computer and software investment, the total effects would mean GDP growth is understated by about 0.4 percentage point for 2000, 2005, 2010 and 2015, according to the paper. Bloomberg