cost-of-living index


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cost-of-living index

An indicator of the current price level for goods and services as compared to a base year.The base year is always set at a value of 1.0 or 100.As the cost of living increases (inflation), the number will increase, so that a cost of living index of 150 means things cost 50 percent more than they did in the base year. As the cost of living decreases (recession or depression) the number will decrease,so that a cost of living index of 93 means things cost only 93 percent of what they cost in the base year.The consumer price index is one such cost of living index.

References in periodicals archive ?
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.
In previous decades, there was usually a long lull in revision activity for CPI staff after the introduction of a revamped cost-of-living index. Following the unveiling in early 1940 of the Cost of Living of Wage Earners and Lower-Salaried Workers in Large Cities index, (50) however, there would be no respite for the CPI program.
Finally, for comparison we can construct a cost-of-living index. We can define the value as exactly 1.00 in period 0.
(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. That approach indicates that the price of services of consumer durables should be in the index and that there are two valid approaches to estimating the services of consumer durables.
, "Group Cost-of-Living Indexes," American Economic Review, Vol.
Cost-of-living index number theory proceeds from the proposition that a consumption price index should measure the change in the cost of maintaining a fixed, or constant, standard of living.
Cost-of-living index theory stresses, however, that consumers can reach the same standard of living in more than one way.
In this paper, I first explain the theory of cost-of-living indexes and then demonstrate how new goods should be included.
We also calculate Fisher indexes, which are theoretically closer to a true cost-of-living index and which employ more recent information on expenditures.
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.(37)
That paper provides theoretical justification for the index formulas the Bureau of Labor Statistics uses to measure multifactor productivity, and for research estimates by BLS of how much a cost-of-living index that accounted for commodity substitution effects would differ from the Consumer Price Index.
One source of concern continues to be substitution bias, which arises from the use of a fixedweight Laspeyres index formula rather than a true cost-of-living index.