What is the name of the index that uses a geometric mean formula to adjust for substitution effects in consumer prices?

The index designed to account for consumer substitution in measured prices is the Chained Consumer Price Index.

In the United States, the Bureau of Labor Statistics calls the main series the C-CPI-U, or Chained CPI for All Urban Consumers. Unlike a traditional fixed-weight basket, it uses expenditure information from adjacent periods so the measured basket can reflect changes in what households actually buy when relative prices change.

The name “chained” refers to linking successive periods together rather than comparing every period with one permanently fixed set of weights. This makes the index a cost-of-living-oriented measure, though it is still not a complete cost-of-living index: it does not capture every change in quality, consumer welfare, or purchasing patterns.

The common mix-up is saying that the ordinary CPI never uses geometric means. Since 1999, the CPI has used a geometric-mean formula for many lower-level item indexes to allow limited substitution within categories. The Chained CPI addresses substitution across broader categories through its higher-level aggregation methods; its exact modern calculation is more technically nuanced than “just a geometric mean.”