How the CPI values our privacy– or doesn’t

Measuring inflation isn’t an easy matter; I don’t think many of us can even agree on exactly what inflation is. But it’s somehow related to prices consumers pay, and the biggest operation measuring that, at least in the U S, is the Bureau of Labor Statistics’ Consumer Price Index. There are lots of issues with how they measure, and how they report, but one which I haven’t seen discussed regards “loyalty” cards and the value of privacy.

Many retailers in recent years have set up “clubs” of one sort of another to better track their customers. One of the noteworthy exceptions until last year was Walgreens, and there remain a few other respectable merchants, but nowdays one who chooses not to participate ends up giving up a fair amount of money (or convenience).  So does the Consumer Price Index recognize that privacy has a price?

The answer, at least conceptually, turns out to be straightforward.  It’s right here in Chapter 17 of the Handbook of Methods. As described on pages 31-32 of this pdf, if a discount is offered only to card users, is temporary (lasts no longer than a month or two), and at least 50% of the sales are at the discounted price, then the CPI recognizes the discounted price. (If the discount is for a longer period, then pro-rata weighting is used.)  In essence, if most people give up privacy for a discount, then the CPI doesn’t recognize this as a cost.

At least in the stores I visit, it seems that most folks are quite willing (or economically constrained) to take the discount; anyone who wants to make a purchase under the policies that were in place twenty years ago needs to pay a higher price, which is not recognized in the Consumer Price Index.