In the US, Kevin O’Keefe chronicled his search for the Average Joe/Jane in his 2005 book, The Average American: The Extraordinary Search for the Nation’s Most Ordinary Citizen. There were numerous criteria that included:
One must be better off financially than his or her parents, but not earn more than $75,000 a year.
One must believe in god and the literal truth of the Bible.
One must reside within three miles of a McDonald’s and two miles of a public park.
In the end, O’Keefe discovered that the average American is, up close, rather extraordinary. Same for the Aam Aami/Aurat, I suppose. So, the CPI basket and the corresponding weights may be constructed in an objective manner, such as by a carefully designed survey on income and consumption. Or, in the absence of such survey data, by the ‘wisdom’ of a few ‘experts’. By comparing the present prices of this set of goods and services to their previous prices, inflation can be calculated. Whether a gold ornament or a bar of Swiss chocolate would end up in this basket is undoubtedly a tricky question.
While inflation is on a slippery slope in this pandemic-ravaged world, does one really need a ‘robust’ measure? Undoubtedly, there are some. In the US, the Federal Reserve Bank of Cleveland’s trimmed-mean CPI gets rid of ‘noise’ by excluding the components with the most extreme price changes. The median CPI reflects only the change in price at the centre of the distribution. Also, the change in prices excluding volatile items like food and energy is referred to as ‘core inflation’, which is frequently seen as a better indicator of the underlying rate of price fluctuations. Food and energy, however, are key components of each household’s budget. According to a paper published in the May 2021 issue of Journal of Political Economy (bit.ly/3YWk5ZJ), consumers rely on the price changes of goods in their personal grocery bundles when forming expectations about aggregate inflation.
In early 2022, anti-poverty campaigner Jack Monroe was ‘infuriated’ because CPI ‘grossly underestimates the real cost of inflation as it happens to people with the least’. For instance, the price of rice in Monroe’s local supermarket had increased by 344% in a year, from 45 pence a kg to £1 for 500g. In place of CPI by the British government’s Office for National Statistics (ONS), Monroe proposed the ‘Vimes Boots Index’ – named after Terry Pratchett’s character Sam Vimes’ ruminations in the 1993 ‘Discworld’ novel, Men at Arms, on how poverty causes greater expenses to the poor than to those who are richer using a pair of boots as an example. Monroe’s index intended to be a record of the prices of the lowest-cost staple foods over time.
Pratchett explains: ‘A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought… A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while a poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
ONS acknowledged the shortcomings of their existing methods and released an experimental report in October 2022 that is essentially the Vimes Boots Index in all but name. It measures the actual change in the lowest-priced staples between April 2021 and September 2022. No matter if it’s a pricey boot or a sturdy slipper, measuring inflation remains slippery.
The writer is professor of statistics, Indian Statistical Institute (ISI), Kolkata