What consumer price index? A first attempt to estimate a democratic index for Italy 1995-2002

The consumer price indexes for the entire country and those for individual households are weighted arithmetic averages of relative prices, and they differ essentially in terms of their weighting systems. Whereas the former use the proportions of total expenditure on goods and services, the latter use the proportions of expenditure by each household. In the usual calculation of the index for the entire country, each household contributes to determining the national index with a weight proportional to its expenditure. In other words, the households that spend more – that is, the wealthier ones – are represented in calculation of the national index to a greater extent, and this explains why the latter is termed the ‘plutocratic index’. Counter posed to plutocratic indexes are the ‘democratic’ ones in which the same weight is assigned to each household. The paper has presented a first estimation of the democratic price indexes for Italy in the period 1995-2002. The results are extremely interesting, in that they highlight significant differences between the two calculation methods.