Should the Cost-of-Living Index Provide the Conceptual Framework for a Consumer Price Index?

Abstract

In some countries, the cost-of-living (COL) index serves as the conceptual framework for the CPI, but it has been rejected in others. This paper reviews issues that have arisen in the statistical agency debate and in the economics literature on the COL index, including rhetorical matters which have influenced the debate. I contend that COL theory is useful as a decision-making framework in estimating components of the CPI, and that COL index theory provides appropriate guidance for measuring consumer inflation, contrary to the view that has been adopted for the European HICP and expressed by an advisory committee for the RPI.

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