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[Vol.21 No.4] An Analysis on the Inflation Differentials by Income and Age Group : Focusing on the Democratic CPI

Group :
Economic Research Institute 2015.12.31 3019


Authors: Hyun-Jeong Kim(Bank of Korea), Hyungsik Kim(Bank of Korea), Jungick Lee(Bank of Korea)





  The movements of prices can be differently felt by consumers according to their income and spending structure. Starting from the recognition, this paper calculates the democratic CPI that reflects well the prices that consumers feel using the Household Survey data since 2010 collected by the Statistics Korea (KOSTAT). It aims to explore how big the gaps between the democratic and official CPI Growth rates as well as among different income or age groups. The current official CPI is calculated by weighting price index for a certain item with the ratio of the item to total household expenditures. On the other hand, the democratic CPI uses a value of simple average of the expenditure ratio of individual households as a weighted value for the item.
  The results show that the Growth rate of the democratic CPI of households whose income levels are the bottom 50% or householders are in their 60s and 70s is higher than that of the official CPI by an annual average of 0.3~0.7% during the period from 2011 to 2012 when the overall inflation rate had been high. In addition, the gap among different householder age groups in terms of the Growth rate of the democratic CPI has been widened by up to 3%p since 2011, implying that the price recognition of different household groups can be significantly different. In particular, it is noteworthy that since the latter half of 2013 when low inflation began to be pronounced, the Growth rate of the democratic CPI for the group of householders in their 20s and 30s has continuously exceeded those for the rest groups. It seems that a high burden of housing costs for the group with a relatively high weighted value of those costs such as Jeonse price is reflected in this trend.