Related BLS programs | Related articles November, 2000, Vol.
123, No. 11 Alternative CPI aggregations: two approaches The
theory of the cost-of-living index, which underlies the Consumer
Price Index (CPI), is formulated within the context of the
preferences and welfare of the individual. To construct an
aggregate price index for a population requires that some method
of aggregation be used to "average" the effects of price changes
on all households in the population. It is intended that this
aggregate index represent the "average" or "representative"
household. In most cases (including the CPI), the aggregation
method used corresponds to a plutocratic index.1 Other types of
aggregation, such as the democratic index,2 are also possible,
and, in terms of economic theory, equally valid. However, as
this article explains in a later section, the plutocratic
approach is much more practicable, and it may provide a
different measure of price change than the democratic index.
This article provides an empirical analysi