IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_11973.html
   My bibliography  Save this paper

The CPI, Inflation, and the Cost of Living: A Proposal

Author

Listed:
  • J. Atsu Amegashie

Abstract

Inflation is the percentage change in the CPI over a given period of time. It is usually calculated over a year (year-on-year inflation) and over a month (month-to-month inflation). Even if prices are not currently rising from month to month, the year-to-year inflation rate could still be positive and high. As shown in this article, it is possible that, during a certain period, the cost of living in a given month is the highest but the year-on-year inflation in that month is the lowest. The cost of living and the inflation rate may move in opposite directions. This accounts for the well-known difference between measured (official) inflation and consumers’ perceived inflation. Using the CPI, I propose a simple solution that unambiguously ensures that a fall (a rise) in the inflation rate indicates that we are getting closer to (farther from) a ‘target’ cost of living.

Suggested Citation

  • J. Atsu Amegashie, 2025. "The CPI, Inflation, and the Cost of Living: A Proposal," CESifo Working Paper Series 11973, CESifo.
    • Handle: RePEc:ces:ceswps:_11973
    as

    Download full text from publisher

    File URL: https://www.ifo.de/DocDL/cesifo1_wp11973.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ehrmann, Michael & Tzamourani, Panagiota, 2012. "Memories of high inflation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 174-191.
    2. Michael Weber & Yuriy Gorodnichenko & Olivier Coibion, 2023. "The Expected, Perceived, and Realized Inflation of US Households Before and During the COVID19 Pandemic," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 326-368, March.
    3. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
    4. Abildgren, Kim & Kuchler, Andreas, 2021. "Revisiting the inflation perception conundrum," Journal of Macroeconomics, Elsevier, vol. 67(C).
    5. Georganas, Sotiris & Healy, Paul J. & Li, Nan, 2014. "Frequency bias in consumers׳ perceptions of inflation: An experimental study," European Economic Review, Elsevier, vol. 67(C), pages 144-158.
    6. Ulrike Malmendier & Alexandra Steiny Wellsjo, 2024. "Rent or Buy? Inflation Experiences and Homeownership within and across Countries," Journal of Finance, American Finance Association, vol. 79(3), pages 1977-2023, June.
    7. Cenzon, Josefina & Szabó, Barna Elek, 2024. "Mortgage choice and inflation experiences in the Eurozone," Journal of Monetary Economics, Elsevier, vol. 147(S).
    8. Boudoukh, Jacob & Richardson, Matthew, 1993. "Stock Returns and Inflation: A Long-Horizon Perspective," American Economic Review, American Economic Association, vol. 83(5), pages 1346-1355, December.
    9. Matthew Hayes, 2011. "The Social History of Quantifying Inflation: A Sociological Critique," Journal of Economic Issues, Taylor & Francis Journals, vol. 45(1), pages 97-112.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alberto Prati, 2024. "The Well‐Being Cost of Inflation Inequalities," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 70(1), pages 213-238, March.
    2. Corduas, Marcella, 2022. "Gender differences in the perception of inflation," Journal of Economic Psychology, Elsevier, vol. 90(C).
    3. Dietrich, Alexander M., 2023. "Consumption categories, household attention, and inflation expectations: Implications for optimal monetary policy," University of Tübingen Working Papers in Business and Economics 157, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    4. Cenzon, Josefina & Szabó, Barna Elek, 2024. "Mortgage choice and inflation experiences in the Eurozone," Journal of Monetary Economics, Elsevier, vol. 147(S).
    5. Lena Dräger & Ulrich Fritsche, 2013. "Don't Worry, Be Right! Survey Wording Effects on In flation Perceptions and Expectations," Macroeconomics and Finance Series 201308, University of Hamburg, Department of Socioeconomics.
    6. Daniel Fehrle, 2023. "Hedging against inflation: housing versus equity," Empirical Economics, Springer, vol. 65(6), pages 2583-2626, December.
    7. Sellin, Peter, 1998. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Working Paper Series 72, Sveriges Riksbank (Central Bank of Sweden).
    8. Boon, L.N. & Brière, M. & Rigot, S., 2018. "Regulation and pension fund risk-taking," Journal of International Money and Finance, Elsevier, vol. 84(C), pages 23-41.
    9. repec:zbw:bofrdp:2021_010 is not listed on IDEAS
    10. Bampinas, Georgios & Panagiotidis, Theodore, 2016. "Hedging inflation with individual US stocks: A long-run portfolio analysis," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 374-392.
    11. Corsello, Francesco & Neri, Stefano & Tagliabracci, Alex, 2021. "Anchored or de-anchored? That is the question," European Journal of Political Economy, Elsevier, vol. 69(C).
    12. Wallace E. Huffman & Matthew Rousu & Jason F. Shogren & Abebayehu Tegene, 2004. "Who Do Consumers Trust for Information: The Case of Genetically Modified Foods?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1222-1229.
    13. Wehrhöfer, Nils, 2023. "Energy prices and inflation expectations: Evidence from households and firms," Discussion Papers 28/2023, Deutsche Bundesbank.
    14. Giot, Pierre & Petitjean, Mikael, 2007. "The information content of the Bond-Equity Yield Ratio: Better than a random walk?," International Journal of Forecasting, Elsevier, vol. 23(2), pages 289-305.
    15. Adam Zaremba, 2015. "Inflation, Business Cycles, and Commodity Investing in Financialized Markets," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 6(1), pages 1-18.
    16. McCown, James Ross & Shaw, Ron, 2017. "Investment potential and risk hedging characteristics of platinum group metals," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 328-337.
    17. Daniel Fehrle, 2021. "Hedging Against Inflation: Housing vs. Equity," Discussion Paper Series 342, Universitaet Augsburg, Institute for Economics.
    18. Stefano Fasani & Giuseppe Pagano Giorgianni & Valeria Patella & Lorenza Rossi, 2024. "Belief Distortions and Disagreement about Inflation," Working Paper series 24-08, Rimini Centre for Economic Analysis, revised May 2025.
    19. Binder, Carola Conces, 2018. "Inflation expectations and the price at the pump," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 1-18.
    20. Hefeker, Carsten, 2022. "Policy coordination under model disagreement and asymmetric shocks," Economic Modelling, Elsevier, vol. 114(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_11973. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.