The Long-Term Divergence Between Your CPI and Mine, The Case of Chile

Andrea Bentancor and Pablo Pincheira

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: In this paper we analyze the Chilean Consumer Price Index (CPI) with respect to ten price indexes representing the average price faced by ten different income groups. We construct these indexes using information from two versions of the Household Expenditure Survey: that obtained for the period 1996-1997 and for the period 2006-2007. We show that the official CPI is a fairly good representation of the prices faced by the eighth and seventh income decile agents (first income decile is the poorest, tenth income decile is the richest). CPI shows a decreasing ability to represent the cost of life as the distance to the seventh and eighth decile increases. In particular, the poorest and richest people are the worst represented by the CPI. We also show that the inflation faced by different income groups has important similarities, but also some remarkable differences. For instance, while all income groups display a monthly inflation rate around 0.25 percent, the standard deviation of the lowest income group annual inflation is 45% higher than that of the richest group. More importantly, we show that different income groups face either permanent or very persistent gaps in their price indexes, indicating that differences across income groups may take a long time to dissapear.

Date: 2014-08
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:736

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