Construction of True Cost of Food Indexes from Estimated Engel Curves

This paper applies a technique to derive true cost-of-living indexes from the estimation of a simple system of piglog Engel curves. This technique allows a maximum amount of commodity disaggregation, and the indexes show the impact of inflation on households with different expenditure levels and demographic characteristics. Results indicate that the consumer price index (CPI) underestimated the cost of food over the 1980–85 period. The CPI more accurately reflects the cost of food for nonwhite households with low or average food expenditures.