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Democratic Aggregation: Issues and Implications for Consumer Price Indexes

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  • Robert S. Martin

Abstract

This paper constructs and compares consumer price indexes (CPI) using weighting methods that differentially incorporate inflation disparities across households. Plutocratic CPIs, commonly used by statistical agencies, weight households based on their total expenditure, while democratic CPIs equally weight households to better represent average consumer experiences. I estimate democratic versions of the Bureau of Labor Statistics' CPI and Chained CPI (C‐CPI) for all urban consumers using the Lowe and Törnqvist formulas, respectively. From December 2002 to June 2021, the democratic CPI‐U exceeds its plutocratic counterpart by approximately 0.08 percentage points per year, on average, while the democratic C‐CPI‐U surpasses the plutocratic by 0.19 percentage points per year. The results indicate a negative correlation between inflation and household expenditure level over the study period. I also find weight frequency to be more important than index formula for explaining why larger differences occur for the C‐CPI‐U.

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  • Robert S. Martin, 2025. "Democratic Aggregation: Issues and Implications for Consumer Price Indexes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 71(1), February.
    • Handle: RePEc:bla:revinw:v:71:y:2025:i:1:n:e12703
    DOI: 10.1111/roiw.12703
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    2. Alicia N. Rambaldi & D.S. Prasada Rao, 2013. "Econometric Modeling and Estimation of Theoretically Consistent Housing Price Indexes," CEPA Working Papers Series WP042013, School of Economics, University of Queensland, Australia.
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    4. David Argente & Munseob Lee, 2021. "Cost of Living Inequality During the Great Recession," Journal of the European Economic Association, European Economic Association, vol. 19(2), pages 913-952.
    5. Pollak, Robert A., 1989. "The Theory of the Cost-of-Living Index," OUP Catalogue, Oxford University Press, number 9780195058703.
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    1. Thesia I. Garner & Robert S. Martin & Brett Matsumoto & Scott Curtin, 2022. "Distribution of U.S. Personal Consumption Expenditures for 2019: A Prototype Based on Consumer Expenditure Survey Data," Economic Working Papers 557, Bureau of Labor Statistics.

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