AI: Does CPI register inflation based on what consumers consume, or on what is not consumed because of higher prices?

I asked ChatGPT and Grok:

Briefly please: "Does the Consumer Price Index (CPI) register the inflation in the cost of those products the consumers now consume, or the costs of the products consumers have stopped to consume because of higher prices?"

ChatGPT answered:

"CPI mainly registers the prices of what consumers do consume now, not what they’ve stopped buying.

It tracks a fixed (but periodically updated) basket of goods and services, with weights based on observed spending patterns. When prices rise, consumers often substitute toward cheaper alternatives; CPI reflects that substitution only slowly and imperfectly. As a result:

· It captures inflation in current consumption,

· but it largely misses the “inflation” of foregone goods—the welfare loss from things people no longer buy because they became too expensive.

This is the classic substitution bias critique of CPI."

Grok answered:

"The Consumer Price Index (CPI) primarily measures price changes for a fixed "market basket" of goods and services based on what consumers typically consumed during a base period (updated periodically, e.g., every few years). 

It does not immediately adjust for substitution effects, where consumers switch away from products due to higher prices. Thus, it registers inflation including the costs of products consumers may have stopped or reduced consuming, potentially overstating the true cost of living for current consumption patterns. For that, alternatives like the Chained CPI account better for substitutions."

Note: This is an interesting case in which the answers differ in a quite important way.

Note: The answers are copied exactly from those given to me by ChatGPT and Grok.