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The Average Effective Consumer Price Index (AECPI): A Complementary Measure of Real Inflation

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  • Martin Sanchez, Endika

Abstract

This paper introduces and evaluates the Average Effective Consumer Price Index (AECPI) as a complementary indicator to the traditional Consumer Price Index (CPI). While the official CPI is based on an “average” consumption basket, it systematically fails to capture the heterogeneity of household budget constraints. The AECPI addresses this limitation by transitioning from a theoretical macroeconomic final consumption approach to an effective "cash-flow" paradigm, adjusting its weights according to observed household spending distributions derived from the Household Budget Survey (HBS). Crucially, by substituting the imputed Rental Equivalence method with a Payment Approach for housing costs, the AECPI accurately reflects the structural budget rigidity of lower- and middle-income strata (where housing weights surge from ~12% to over 31%). This approach provides a more accurate representation of the effective impact of inflation on household welfare. Empirical evidence for Spain (2007-2024) reveals a cumulative structural understatement by the official CPI of 5.01 percentage points. In extreme volatility contexts, such as the 2021 energy crisis, the gap between the AECPI and the official CPI peaked at nearly 4 percentage points (10.53% vs. 6.55%), evidencing a severe, unrecorded erosion of purchasing power. The paper discusses the methodological advantages, empirical validity, and potential applications of the AECPI in socioeconomic analysis, highlighting its necessity for targeted public policy, tax deflation, and the preservation of social cohesion in macroeconomic contexts characterized by asymmetric inflation and growing inequality.

Suggested Citation

  • Martin Sanchez, Endika, 2026. "The Average Effective Consumer Price Index (AECPI): A Complementary Measure of Real Inflation," MPRA Paper 128331, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:128331
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    References listed on IDEAS

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    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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