What is one problem with the CPI as a measure of the cost of living? The consumer price index is an imperfect measure of the cost of living for the following three reasons: substitution bias, the introduction of new goods, and unmeasured changes in quality. Conversely, as the price of a good falls, people will tend to purchase more of it. When the price of a good rises, consumers tend to purchase less of it and to seek out substitutes instead.
Two problems arise here: substitution bias and quality/new goods bias.
