Whose Inflation? A Characterization of the CPI Plutocratic Bias
18 Pages Posted: 10 Feb 2006
There are 2 versions of this paper
Whose Inflation? A Characterization of the CPI Plutocratic Bias
Whose Inflation? A Characterization of the CPI Plutocratic Bias
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: Suggested Citation