Getting Real about Inequality : Evidence from Brazil, Colombia, Mexico, and Peru

Consumption baskets vary across households and inflation rates vary across goods. As a result, standard consumer price index (CPI) inflation may provide a misleading measure of the inflation actually faced by poor households, more so the more unequal the distribution of aggregate consumption across households. Likewise, changes in observed nominal consumption inequality may be very different from those in true inequality, that is, that measured using household-specific CPIs. The authors explore empirically these issues using household data covering nine episodes from four Latin American countries (Brazil, Colombia, Mexico, and Peru). They find that in these countries standard CPI inflation typically reflects the inflation rate faced by a rich consumer located in the 80 to 90 percentile of the distribution of consumption expenditure. In most episodes the authors also find that inflation was anti-rich-that is, the inflation faced by the richest consumers was higher than the inflation faced by the poorest consumers. As a result of this bias, the observed increases in nominal inequality generally exceed the actual changes in real inequality. These results are robust to correcting for quality change bias in the CPI, to the use of alternative price indices, and to the use of alternative inequality measures.

Bibliographic Details

Main Authors:	Goñi, Edwin, Servén, Luis, López, Humberto
Language:	English
Published:	World Bank, Washington, DC 2006-01
Subjects:	ABSOLUTE VALUE, ADMINISTERED PRICES, ANNUAL INFLATION, AVERAGE ANNUAL, AVERAGE CONSUMPTION, BASE YEAR, BENCHMARK, CENTRAL BANK, CONSUMER, CONSUMER PRICE, CONSUMER PRICE INDEX, CONSUMER PRICE INDICES, CONSUMERS, CONSUMPTION EXPENDITURE, CONSUMPTION GROWTH, CONSUMPTION LEVELS, CONSUMPTION PATTERNS, COST OF LIVING, DEVELOPING WORLD, DISTRIBUTIONAL IMPACT, ECONOMIC STATISTICS, ECONOMIC STUDIES, EMPIRICAL ANALYSIS, EMPIRICAL EVIDENCE, EMPIRICAL LITERATURE, EMPIRICAL RESULTS, EXPENDITURE, EXPENDITURES, GINI COEFFICIENT, GROWTH RATE, HIGH INEQUALITY, HOUSEHOLD CONSUMPTION, HOUSEHOLD DATA, HOUSEHOLD EXPENDITURE, HOUSEHOLD EXPENDITURE SURVEYS, HOUSEHOLD INCOME, INCOME, INCOME DISTRIBUTION, INCOME GROUPS, INCOME LEVELS, INCREASING FUNCTION, INDEXATION, INEQUALITY, INEQUALITY CHANGES, INEQUALITY INDEX, INEQUALITY INDICATORS, INEQUALITY MEASURES, INEQUALITY TRENDS, INFLATION, INFLATION RATE, INFLATION RATES, LATIN AMERICAN, LIVING ADJUSTMENT, MEASUREMENT ERROR, MEASUREMENT ERRORS, NOMINAL INCOME, NOMINAL INCOMES, OBSERVED CHANGE, OBSERVED CHANGES, POLICY RESEARCH, POLITICAL ECONOMY, POOR HOUSEHOLDS, PRICE CHANGES, PRICE INCREASE, PRICE INDICES, PRICE STRUCTURE, PRICE TRENDS, PUBLIC TRANSFERS, REAL INCOME, SIGNIFICANT DIFFERENCES, SUBSTITUTE, SUBSTITUTES, SUBSTITUTION, TOTAL CONSUMPTION, WAGES,
Online Access:	http://documents.worldbank.org/curated/en/2006/01/6525971/getting-real-inequality-evidence-brazil-colombia-mexico-peru https://hdl.handle.net/10986/8796
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