This chapter addresses how innovation may affect price measurement—a key issue for the accuracy of measures of principal economic indicators and a long-discussed one. Two main changes related to product innovation are important in this context: new goods (which are often cheaper) are driving old goods out of the market; and new products often offer improved quality. The literature suggests that a failure to properly account for these has added 0.8 percentage points per year to the measured Consumer Price Index in the United States. Quality adjustment approaches in all OECD countries have converged towards general methodological guidelines that represent a common knowledge base. The hedonic methodology is applied in a significant number of countries and for specific categories of goods, in particular electronic products. The use of this approach is exemplified and the impact on price indexes evaluated.
