Is the United States CPI Biased Across Income and Age Groups?

September 1, 1998

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The recent Boskin Commission Report (1996) underscores a significant upward bias in CPI measurement in the United States. This may result in excessive cost-of-living adjustment (COLA) of some entitlements in the federal budget because COLA is indexed to CPI. This paper presents some evidence that overall CPI may be biased against lower income elderly households, the primary beneficiaries of COLA. Although a downward adjustment in CPI resulting in an across-the-board cut in COLA of entitlements may yield significant budgetary savings, it may result in a deterioration in income distribution against lower income elderly households.

Subject: Aging, Consumer price indexes, Expenditure, Inflation, National accounts, Personal income, Population and demographics, Prices

Keywords: age cohort, age groups, Aging, COLA, Consumer price indexes, CPI, CPI measurement, CPI-W bias, CPI-W inflation, income, income brackets, income cohort, Inflation, major CPI-W component, market basket weight, Personal income, WP

Pages:
34
Volume:
1998
DOI:
https://doi.org/10.5089/9781451855784.001
Issue:
136
Series:
Working Paper No. 1998/136
Stock No:
WPIEA1361998
ISBN:
9781451855784
ISSN:
1018-5941

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