Apart from the influence the index had on wartime planning, however, a reading of the most current CPI methods manual reveals that the legacy of the modernization of the cost-of-living index during the New Deal era is still present today in some aspects of current CPI methodology.
Throughout 1942, the Bureau's Cost of Living Division made incremental changes to the index to cope with disappearing goods, government rationing orders, and changing population patterns in an attempt to make "its cost-of-living index represent each month changes in the costs of the goods and services which wage earners and clerical workers [could] actually buy in the war years.
The decision was based on the change in the cost-of-living index since January 1941.
If we divide money income by a cost-of-living index, the real income rises if and only if utility rises.
Thus the cost-of-living index for period 1 is [3[square root of 12]]/12, which in this case is exactly equal to the Fisher index.
2) The perennial question of whether to include asset prices in the CPI can be evaluated in the context of a cost-of-living index.
Cost-of-living index theory stresses, however, that consumers can reach the same standard of living in more than one way.
The theoretical cost-of-living index was for many years regarded as purely an abstraction, an idea that could not be implemented in actual price index calculations.
By ignoring this flexibility in consumer behavior, the Laspeyres formula becomes, in terms of economic theory, an upper bound to the true cost-of-living index measure.
If both Paasche and Laspeyres indexes are calculated, however, it is possible to produce an index that is, in theory, a very close approximation to a true cost-of-living index.
We employed two methodological approaches to construction of the cost-of-living index
(COL) and calculation of the substitution bias.