Alternative approaches to CPI aggregation
January 10, 2001
Both "plutocratic" and "democratic" approaches to consumer price index aggregation yield very similar index values.
In a plutocratic index, the relative level of total expenditures of each household provides the weights. For a democratic index, each household's expenditure patterns is equally weighted. One can view the plutocratic case as "one dollar, one vote" and the democratic case as "one household, one vote."
As shown in the chart, from 1987 to 1997, the two approaches produce similar index numbers. In most years, the plutocratic index is below the democratic index, but the difference between the two indexes is small-about one percent or less.
Bureau of Labor Statistics, U.S. Department of Labor, The Economics Daily, Alternative approaches to CPI aggregation on the Internet at http://www.bls.gov/opub/ted/2001/jan/wk2/art03.htm (visited July 01, 2016).