Whose Inflation? A Characterization of the CPI Plutocratic Bias

18 Pages Posted: 10 Feb 2006

Multiple version iconThere are 2 versions of this paper

Date Written: May 2001

Abstract

Prais (1958) showed that the CPI computed by statistical agencies can be interpreted as a weighed average of household price indexes, the weight of each household determined by its total expenditures. We decompose the difference between the standard CPI and a democratically weighed index (i.e., the plutocratic bias) as the product of average income, income inequality, and the covariance between individual price indexes and a parameter related to each good's income elasticity. This decomposition allows us to interpret variations in the size and sign of the plutocratic bias, and also to discuss issues pertaining to group indexes.

Keywords: consumer price index, plutocratic index, democratic index, group index, aggregation, equivalence scales, inflation

JEL Classification: C43, D31, D63

Suggested Citation

Ley, Eduardo, Whose Inflation? A Characterization of the CPI Plutocratic Bias (May 2001). IMF Working Paper No. 01/59, Available at SSRN: https://ssrn.com/abstract=879538

Eduardo Ley (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

HOME PAGE: http://eWorldNet.org

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