This paper examines the contribution of unobserved contemporaneous preference structures over
different products on consumer spending. Previous studies that dealt with idiosyncratic preference
shocks only focus on time preference of individual consumers. But for variety-loving consumers, the
differences in preferences structure over various products between consumers and its change over
times might affect consumer spending through different income and price elasticity. We use micro
panel data on barcode-level purchase records to recover unobserved preference parameters of
consumers belonging to different clusters by estimating a structural model of consumer demand. Then
a fixed effects model estimation is conducted on the micro panel data. The results show that using the
price index adjusted by contemporaneous preference structure improve the explanatory power of the
model significantly compared to other reference price indices such as Stone price index with true price,
Stone price index with product-group CPI, and all item CPI.
