This paper studies the problems of measuring economic growth under conditions
of high inflation. Traditional bilateral index number theory implicitly assumes that
variations in the price of a
commodity within a period can be ignored. To justify this assumption under conditions of
high inflation, the accounting period must be shortened
to a quarter, a month, or possibly a week.
However, once the accounting period is less
than a year, the problem of seasonal commodities is
encountered; i.e., in some subannual periods, many seasonal commodities
will be unavailable and hence the usual bilateral index number
theory cannot be applied. The paper systematically
reviews the problems
of index number construction when there are seasonal commodities and high
inflation. Various index number formulas are justified from the viewpoint of the economic
approach to index number theory by making separability assumptions on consumers'
intertemporal preferences. We
find that accurate economic measurement under
conditions of high inflation is very complex.