Measuring “the” purchasing power

Mesurer « le » pouvoir d'achat

François Geerolf

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Abstract: This article offers a critical analysis of the official measurement of purchasing power in France. While the statistics published by Insee report an increase in "purchasing power" despite the return of inflation since 2021, this finding appears at odds with households' lived experience. The article argues that this divergence stems from methodological choices specific to France in the very definition of purchasing power, affecting both the numerator (gross disposable income) and the denominator (the consumption deflator). The consumption deflator tends to underestimate inflation because of its scope - most notably the exclusion of housing investment - its calculation method (a Paasche index), and the extensive use of quality adjustments by international comparison. Symmetrically, aggregate income overstates the evolution of resources effectively received by the median household, in particular because capital income is highly concentrated at the top of the distribution. The article therefore advocates a plurality of indicators for purchasing power - for example, net wages deflated by the Harmonised Index of Consumer Prices (HICP), or gross disposable income excluding capital income - in order to better inform public debate and strengthen the credibility of official statistics.

Keywords: Consumption deflator; Capital income; Gross disposable income; Quality adjustment; Paasche index; Harmonised Index of Consumer Prices (HICP); Statistical measurement; Consumer Price Index (CPI); Inflation; Purchasing power; Median income; Income inequality; Income distribution; Public debate; Political economy; Official statistics; Mesure statistique; Pouvoir d’achat; Indice de Paasche; Économie politique.; Indice des prix à la consommation (IPC); Indice des prix à la consommation harmonisé (IPCH); Déflateur de la consommation; Débat public; Ajustements qualité; Revenu disponible brut; Revenu médian; Revenus du capital; Inégalités de revenu; Distribution des revenus; Statistique publique (search for similar items in EconPapers)
Date: 2024-07-09
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Published in 2024

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Working Paper: Measuring “the” purchasing power (2024)
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