Estimating Upward Bias in
the Japanese CPI Using Engel's Law

Kazuhito Higa

April 2013


The Japanese Consumer Price Index (CPI) is considered to be upwardly biased. This paper estimates the Engel curve based on National Survey of Family Income and Expenditure data to measure the bias. The estimated annual bias for the period 1989 to 2004 is 0.5 percentage points. Correcting the bias leads to a lower inflation rate of 0.14 percent per year, against the official inflation rate of 0.65 percent during the period. A demographic analysis shows that a household with a pre-school child faces a smaller bias suggesting that the opportunity cost of shopping determines the size of the bias.

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