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Using Engel Curves to Estimate the Bias in the Australian CPI

Economics

Using Engel Curves to Estimate the Bias in the Australian CPI

G. F. Barrett and M. Brzozowski

This research by Garry F. Barrett and Matthew Brzozowski dives into the accuracy of the Australian Consumer Price Index (CPI) as a measure of living costs. It reveals that the CPI overstated the change in living costs by a staggering 34% from 1975 to 2004, particularly affecting single adults and lone-mother families. Find out more!

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~3 min • Beginner • English
Abstract
The Australian consumer price index (CPI) is a Laspeyres price index which is subject to a number of well-known biases. In this article we evaluate the performance of the Australian CPI as a true cost of living index by comparing CPI-deflated food Engel curves estimated with the Australian Bureau of Statistics Household Expenditure Surveys. Our findings indicate that the Australian CPI overstated the change in the general cost of living between 1975/1976 and 2003/2004 by 34 per cent. The CPI was especially inaccurate for single adults and lone mother families. In contrast, the CPI was relatively accurate in measuring the change in the cost of living for two-adult and working families.
Publisher
Economic Record
Published On
Mar 01, 2010
Authors
Garry F. Barrett, Matthew Brzozowski
Tags
Australian Consumer Price Index
cost of living
Engel curves
Household Expenditure Surveys
economic accuracy

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