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The Plutocratic bias in the Indian CPI

Author

Listed:
  • Nachane, Dilip M

    (Indira Gandhi Institute of Development Research)

  • Aditi Chaubal

    (Australian Consulate General, Mumbai)

Abstract

The Laspeyres-type consumer price index (CPI) is traditionally used to measure the changes in cost-of-living over time. Studies indicate this CPI suffers from a plutocratic bias, attaching greater weightage to expenditure by rich compared to poor; while democratic CPI uses equal weights. We calculate the plutocratic bias for the new Indian CPI (launched in 2012), rural and urban CPI, and CPI of three Indian states from 2012-2015. We develop democratic CPI indexes for commodity groups: necessities, luxuries, housing and others; and separate indexes for three consumption brackets. Our analysis has important implications for monetary policy and indexation of transfer payments.

Suggested Citation

  • Nachane, Dilip M & Aditi Chaubal, 2017. "The Plutocratic bias in the Indian CPI," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-011, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2017-011
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    References listed on IDEAS

    as
    1. Eduardo Ley, 2005. "Whose inflation? A characterization of the CPI plutocratic gap," Oxford Economic Papers, Oxford University Press, vol. 57(4), pages 634-646, October.
    2. Paul Armknecht & Mick Silver, 2014. "Post-Laspeyres: The Case for a New Formula for Compiling Consumer Price Indexes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(2), pages 225-244, June.
    3. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762.
    4. Brigitte Buhmann & Lee Rainwater & Guenther Schmaus & Timothy M. Smeeding, 1988. "Equivalence Scales, Well‐Being, Inequality, And Poverty: Sensitivity Estimates Across Ten Countries Using The Luxembourg Income Study (Lis) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-142, June.
    5. Angus Deaton, 1998. "Getting Prices Right: What Should Be Done?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 37-46, Winter.
    6. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-142, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Laspeyres index numbers; plutocratic bias; democratic CPI; expenditure elasticity; consumption brackets; India;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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