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Getting realabout inequality : evidence from Brazil, Colombia, Mexico, and Peru

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  • Goni, Edwin
  • Lopez, Humberto
  • Serven, Luis

Abstract

Consumption baskets vary across households and inflation rates vary across goods. As a result, standard consumer price index (CPI) inflation may provide a misleading measure of the inflation actually faced by poor households, more so the more unequal the distribution of aggregate consumption across households. Likewise, changes in observed nominal consumption inequality may be very different from those in true inequality, that is, that measured using household-specific CPIs. The authors explore empirically these issues using household data covering nine episodes from four Latin American countries (Brazil, Colombia, Mexico, and Peru). They find that in these countries standard CPI inflation typically reflects the inflation rate faced by a rich consumer located in the 80 to 90 percentile of the distribution of consumption expenditure. In most episodes the authors also find that inflation was anti-rich-that is, the inflation faced by the richest consumers was higher than the inflation faced by the poorest consumers. As a result of this bias, the observed increases in nominal inequality generally exceed the actual changes in real inequality. These results are robust to correcting for quality change bias in the CPI, to the use of alternative price indices, and to the use of alternative inequality measures.

Suggested Citation

  • Goni, Edwin & Lopez, Humberto & Serven, Luis, 2006. "Getting realabout inequality : evidence from Brazil, Colombia, Mexico, and Peru," Policy Research Working Paper Series 3815, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3815
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    References listed on IDEAS

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    6. Hagemann, Robert P, 1982. "The Variability of Inflation Rates across Household Types," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 494-510, November.
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    Cited by:

    1. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.
    2. Filho, Irineu de Carvalho & Chamon, Marcos, 2012. "The myth of post-reform income stagnation: Evidence from Brazil and Mexico," Journal of Development Economics, Elsevier, vol. 97(2), pages 368-386.
    3. Mr. Marcos d Chamon & Mr. Irineu E de Carvalho Filho, 2006. "The Myth of Post-Reform Income Stagnation in Brazil," IMF Working Papers 2006/275, International Monetary Fund.
    4. Finn, Arden & Leibbrandt, Murray & Oosthuizen, Morne, 2014. "Poverty, inequality, and prices in post-apartheid South Africa," WIDER Working Paper Series 127, World Institute for Development Economic Research (UNU-WIDER).
    5. Augusto de la Torre & Eduardo Levy Yeyati & Guillermo Beylis & Tatiana Didier & Carlos Rodriguez Castelan & Sergio Schmukler, "undated". "Inequality in a Lower Growth Latin America : LAC Semiannual Report, October 2014," World Bank Other Operational Studies 20413, The World Bank.
    6. David Fielding, 2010. "Non-monetary Determinants of Inflation Volatility: Evidence from Nigeria," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 19(1), pages 111-139, January.

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    Keywords

    Markets and Market Access; Economic Theory&Research; Access to Markets; Inequality; Consumption;
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