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Whose Inflation? A Characterization of the CPI Plutocratic Bias
Author:
Mr. Eduardo Ley
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Series:
IMF Working Papers
Volume/Issue:
Volume 2001: Issue 059
Language:
English
Publication Date:
01 May 2001
DOI:
https://doi.org/10.5089/9781451847949.001
ISBN:
9781451847949
ISSN:
1018-5941
Pages:
17
Keywords:
WP; consumer price index; plutocratic index; democratic index; group index; aggregation; equivalence scales; inflation; plutocratic bias; CPI user; budget share; covariance term; bias decomposition; income elasticity; expenditure pattern; U.K. CPI; Consumer price indexes; Personal income; Income inequality; Household consumption
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund