The authors thank Martin Browning, Tom Crossley, John Gibson, Peter Siminski, participants at the Econometric Society of Australasia Meetings in Wellington 2008, NCER ‘Interaction between Microeconomics and Macroeconomics’ Workshop, Sydney 2008, seminars at Macquarie University and UNSW and two anonymous referees for helpful comments and suggestions. The usual disclaimer applies.
Using Engel Curves to Estimate the Bias in the Australian CPI*
Article first published online: 3 SEP 2009
© 2009 The Economic Society of Australia
Volume 86, Issue 272, pages 1–14, March 2010
How to Cite
BARRETT, G. F. and BRZOZOWSKI, M. (2010), Using Engel Curves to Estimate the Bias in the Australian CPI. Economic Record, 86: 1–14. doi: 10.1111/j.1475-4932.2009.00594.x
- Issue published online: 25 FEB 2010
- Article first published online: 3 SEP 2009
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.