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consumer price index

Do changes in the CPI provide a reliable yardstick to measure changes in the cost of living?

Andrew Dabalen's picture
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This blog is the latest in a series of posts reflecting on the findings in the 2016 World Bank Poverty in a Rising Africa report, released in its entirety this month. We look forward to your questions and comments regarding this and other blogs in the series.

The consumer price index (CPI) is the most commonly used measure of inflation in the world, and Africa is no exception. But do CPIs reliably reflect the actual change in the cost of living? And if not, how does this affect our understanding of how poverty has evolved in the region?

The CPI is derived from a fixed and supposedly representative basket of goods and services provided in the domestic market to measure a cost-of-living index. To keep up with changing consumption patterns, the basket weights need to be updated regularly. But often they are not. Most get updated every decade or even less frequently, so they become less and less representative of the items that consumers actually purchase.