governments have fixed ceiling prices, some goods are always sold above the ceilings in regular markets and some in hide-away and flyby-night markets. Many official statistical agencies take the position that the prices used in computing official price indexes should cover, in the proper proportions, not only ceiling prices but also above-ceiling prices charged in regular markets but not prices in irregular channels. This is the practice of the United States Bureau of Labor Statistics. Other official statistical agencies use only ceiling prices in index computation. Explanations of the pricing procedures used are not available for the indexes of many foreign countries and this lack is a great handicap in the interpretation of the figures.

Where black markets are very widely patronized and where the discrepancy between official and free prices is very great, price indexes may grossly understate the increase in the prices actually paid by most purchasers of goods. For example, a report comparing ceiling prices with actual prices in 11 representative markets in one Latin American city showed that actual prices of certain staples ranged from 129 to 200 percent of ceiling prices.

Understatement of the actual extent of price increases may result also as a byproduct of the use of subsidies. Subsidies-which provided producers with incentives to maintain or increase output without making price increases necessary-have been applied to consumer goods as a means of circumventing the disastrous wage-price spiral. However, in some countries where wages have been tied to the cost of living, subsidies have sometimes been used to keep the cost-of-living index from rising but not the total cost of living to the average consumer. This is possible because cost-of-living indexes, in the interest of economy, are almost always based on the price movements of a smaller number of goods than wage earners actually buy. Since in normal times the prices of closely related commodities move together, price changes for an entire group of products are indicated by the price movements of one or two typical items. When the particular commodities priced for the index are selected for subsidization, however, a downward bias is immediately introduced.

An example of the effect of subsidies in contributing to the understatement of price increases may be found in the British cost-of-living index. Many important items in the index-which is based on a 1914 worker's budget and does not allow for subsequent changes in consumption habits-are subsidized. Thus, although the cost-ofliving index stood at 31 percent above the prewar level early last summer, it was recognized in an official publication that the actual increase in consumers' prices was closer to 50 percent.*

British Information Services: Labor and Industry, in Britain, June 1946 (p. 93).

Despite these difficulties, the price indexes are presented in the following pages because they represent the best data that are available on the movement of prices. By regarding them as minimum estimates of the extent of price rises, serious errors in interpretation will be avoided.

RETAIL PRICE INDEXES

Most of these indexes show changes in retail prices of commodities, rents, and services in cities. Footnotes indicate those with more restricted coverage.

TABLE 1.—Indexes of retail prices (living costs) in American republics, August 1939– November 1946

The "consumers' price index for moderate-income families in large cities," formerly known as the "cost of living index," measures average changes in retail prices of selected goods, rents, and services, weighted by quantities bought by families of wage earners and moderate-income workers in large cities in 1934-36. The items priced for the index constituted about 70 percent of the expenditures of city families whose income averaged $1,524 in 1934-36. The index only partially shows the wartime effects of changes in quality, avail ability of consumer goods, etc. The President's Committee on the Cost of Living has estimated that such factors, together with certain others not fully measured by the index, would add a maximum of 3 to 4 points to the index for large cities between January 1941 and September 1944. If account is taken of continued deterioration of quality and disappearance of low-priced merchandise between September 1944 and Sep: tember 1945, which was estimated at an additional point, the total large-city adjustment would be 4.5 points. If small cities were included in the national average, another 2 point would be added, making the total approximately 5 points.

Index does not include rent.

Not available.
August.

Primary data not available; calculated from secondary source.

TABLE 2.-Indexes of retail prices (living costs) in countries of the British Commonwealth, August 1939-November 1946

TABLE 3.-Indexes of retail prices (living costs) in countries of Europe and the Middle

East, August 1939-November 1946

TABLE 3.-Indexes of retail prices (living costs) in countries of Europe and the Middle East, August 1939-November 1946-Continued

The wholesale price indexes are based on prices paid for goods sold in primary markets, weighted in accordance with their relative importance in the countries concerned. The number and kind of items covered, the method of collecting prices, and the method of computing the indexes differ from country to country.

TABLE 4.-Indexes of wholesale prices in American republics, August 1939-November

1946

TABLE 5.—Indexes of wholesale prices in countries of the British Commonwealth, August 1939-November 1946