Does One Size Fit All? The CPI and Canadian Seniors
AbstractThis paper examines the effectiveness of the CPI as a measure of inflation faced by Canadian seniors. I construct a democratic price index and show that the average inflation rate (average when measured by the CPI) is often a very poor measure of inflation rates relevant to individual households. The proportion of individual, household specific price indexes falling more then one percentage point above or more then one percentage point below the CPI often remains high regardless of how closely the mean democratic index approximates the CPI. Further, I demonstrate that the CPI has considerably overstated the inflation faced by Canadian seniors during 1970s and 1980s while more or less accurately capturing inflation during the 1990s. I show that the limitations of the CPI apply to both the senior and the non-senior Canadians in a nearly equal manner. The proportion of individual inflation rates falling significantly above or below the CPI is similar for both segments of the society and so is the time pattern of overstating the average inflation rate.
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Bibliographic InfoPaper provided by McMaster University in its series Social and Economic Dimensions of an Aging Population Research Papers with number 130.
Length: 44 pages
Date of creation: Sep 2005
Date of revision:
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Consumer Price Index; Inflation;
Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- D1 - Microeconomics - - Household Behavior
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
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