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Whose Inflation? A Characterization of the CPI Plutocratic Gap

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  • Eduardo Ley

    (IMF)

Abstract

Prais (1958) showed that the standard CPI computed by most statistical agencies can be interpreted as a weighted average of household price indexes, where the weight of each household is determined by its total expenditures. In this paper, we analytically decompose the difference between the standard CPI and a democratically weighted index (ie, the CPI plutocratic-democratic gap) as the product of expenditure inequality and the sample covariance between the elementary individual price indexes and a parameter which is a function of the expenditure elasticity of each good. This decomposition allows us to interpret variations in the size and sign of the plutocratic-democratic gap, and also to discuss issues pertaining to group indexes.

Suggested Citation

  • Eduardo Ley, 2001. "Whose Inflation? A Characterization of the CPI Plutocratic Gap," Public Economics 0110001, University Library of Munich, Germany, revised 14 Mar 2005.
    • Handle: RePEc:wpa:wuwppe:0110001
    Note: Forthcoming in Oxford Economic Papers. Type of Document - PDF; prepared on MacOSX - CMac; to print on any printer; pages: 12; figures: none
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    Cited by:

    1. Goni, Edwin & Lopez, Humberto & Serven, Luis, 2006. "Getting realabout inequality : evidence from Brazil, Colombia, Mexico, and Peru," Policy Research Working Paper Series 3815, The World Bank.
    2. Ehrmann, Michael & Tzamourani, Panagiota, 2012. "Memories of high inflation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 174-191.
    3. Chamon, Marcos & de Carvalho Filho, Irineu, 2014. "Consumption based estimates of urban Chinese growth," China Economic Review, Elsevier, vol. 29(C), pages 126-137.
    4. Aleksandra Hałka & Agnieszka Leszczyńska, 2011. "Wady i zalety wskaźnika cen towarów i usług konsumpcyjnych – szacunki obciążenia," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 9, pages 51-75.
    5. Dilip M. Nachane & Aditi Chaubal, 2017. "The Plutocratic Bias in the Indian CPI," Working Papers id:12106, eSocialSciences.
    6. Morne Oosthuizen, 2007. "Consumer Price Inflation across the Income Distribution in South Africa," Working Papers 07129, University of Cape Town, Development Policy Research Unit.
    7. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.
    8. Okidi, John A. & Nsubuga, Vincent, 2010. "Inflation differentials among Ugandan household: 1997 - 2007," Research Reports 102497, Economic Policy Research Centre (EPRC).
    9. Petr Janský & Pavel Hait, 2016. "Inflation Differentials among Czech Households," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(1), pages 71-84.
    10. Okidi, John A. & Nsubuga, Vincent, 2010. "Inflation Differentials Among Ugandan Households: 1997 - 2007," Research Series 150482, Economic Policy Research Centre (EPRC).
    11. Carlos Guerrero de Lizardi, 2010. "Alternative Consumer Price Indexes for Mexico," CID Working Papers 42, Center for International Development at Harvard University.
    12. Agnieszka Leszczynska & Aleksandra Halka, 2012. "What does the Consumer Price Index Measure? Bias Estimates for Poland," EcoMod2012 4370, EcoMod.
    13. Andrew Aitken & Martin Weale, 2020. "A Democratic Measure of Household Income Growth: Theory and Application to the United Kingdom," Economica, London School of Economics and Political Science, vol. 87(347), pages 589-610, July.
    14. repec:ebl:ecbull:v:4:y:2002:i:3:p:1-5 is not listed on IDEAS
    15. Morne Oosthuizen, 2013. "Inflation Inequality In South Africa," Working Papers 13158, University of Cape Town, Development Policy Research Unit.
    16. Thomas F. Crossley & Krishna Pendakur, 2006. "The Social Cost-of-Living: Welfare Foundations and Estimation," Quantitative Studies in Economics and Population Research Reports 407, McMaster University.
    17. David Fielding, 2010. "Non-monetary Determinants of Inflation Volatility: Evidence from Nigeria," Journal of African Economies, Centre for the Study of African Economies, vol. 19(1), pages 111-139, January.
    18. Constantin Bürgi, 2020. "Consumer Inflation Expectations and Household Weights," Working Papers 2020-002, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
    19. Liberati, Paolo, 2012. "Democratic, Plutocratic and Social Weights in Price Indexes," MPRA Paper 43978, University Library of Munich, Germany.
    20. David Fielding, 2008. "Inflation Volatility and Economic Development: Evidence from Nigeria," Working Papers 0807, University of Otago, Department of Economics, revised Sep 2008.

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    More about this item

    Keywords

    Consumer price index; plutocratic index; democratic index; group index; aggregation; equivalence scales; inflation.;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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