The Plutocratic Bias in the CPI: Evidence from Spain

IMF Working Papers, October 1, 2000

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The authors define the plutocratic bias as the difference between inflation measured according to the current official CPI and a democratic index in which all households receive the same weight.
The paper finds that during the 1990s the plutocratic bias in Spain amounts to 0.055 percent per year.
Positive and negative biases cancel off when averaging over the whole period; the mean absolute bias is 0.090.
Most of the oscillations experienced by the plutocratic bias can be explained by the price behavior of three goods: a luxury good and two necessities.

Definition: plutocratic bias = official CPI inflation − democratic-index inflation (equal household weights).
Estimated central tendency for the 1990s: 0.055 percent per year (plutocratic bias).
Mean absolute magnitude over the period: 0.090.
Temporal variation primarily driven by three goods: one luxury good and two necessities.

The analysis compares the official CPI with a democratic index that weights households equally.
The investigation attributes the main oscillations in the plutocratic bias to the price behavior of a small set of commodities (specified as a luxury good and two necessities).

Plutocratic bias (1990s): 0.055 percent per year.
Mean absolute bias (whole period): 0.090.
Net average bias over the whole period is close to zero due to cancellation of positive and negative biases, despite larger mean absolute deviations.

The Plutocratic Bias in the CPI: Evidence from Spain, Javier Ruiz Castillo, Eduardo Ley, Mario Izquierdo, October 1, 2000.

The Plutocratic Bias in the CPI: Evidence from Spain - WP/00/167
- The Plutocratic Bias in the CPI: Evidence from Spain - WP/00/167 (Markdown version)
- The Plutocratic Bias in the CPI: Evidence from Spain - WP/00/167 (PDF)