Using Engel Curves to Estimate the Bias in the Australian CPI

14 Pages Posted: 1 Mar 2010

See all articles by Garry F. Barrett

Garry F. Barrett

University of Sydney

Matthew Brzozowski

University of Western Ontario

Date Written: 2009-08-14

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.

Suggested Citation

Barrett, Garry F. and Brzozowski, Matthew, Using Engel Curves to Estimate the Bias in the Australian CPI (2009-08-14). Economic Record, Vol. 86, Issue 272, pp. 1-14, March 2010, Available at SSRN: https://ssrn.com/abstract=1560147 or http://dx.doi.org/10.1111/j.1475-4932.2009.00594.x

Garry F. Barrett (Contact Author)

University of Sydney ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

Matthew Brzozowski

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

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