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The 1995/1996 Household Income, Expenditure - (PDF, 101 mb ...

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V.4<br />

To underscore the critical importance of measuring inflation properly, we<br />

ask one simple question: "Have expenditures (incomes, or wages) increased or<br />

decreased in the 1990s?" Redrawing the table from Chapter II, it is clear that<br />

the answer depends on the CPr.<br />

Percentage Changes in Median <strong>Expenditure</strong>s, <strong>Income</strong>s, and Wages, 1990/1991 ­<br />

<strong>1995</strong>/<strong>1996</strong><br />

Estimate for Average <strong>Household</strong> 1990/1991<br />

- <strong>1995</strong>/<strong>1996</strong><br />

%<br />

Increase<br />

(+ or -)<br />

Median <strong>Expenditure</strong>s, Unadjusted + 27.61%<br />

Median <strong>Expenditure</strong>s, Adjusted by All-items CPI and Equivalence - 30.03%<br />

Median <strong>Income</strong>s, Unadjusted + 39.23%<br />

Median <strong>Income</strong>s, Adjusted by All-items CPI, and Equivalence - 23.80%<br />

Median Wages & Salaries, Unadjusted + 40.39%<br />

Median Wages & Salaries, Adjusted by All-items cpr - 22.19%<br />

Female Median Wages, Unadjusted + 52.29%<br />

Female Median Wages, Adjusted by All-items CPI - 15.99%<br />

Male Median Wages, Unadjusted + 38.88%<br />

Male Median Wages, Adjusted by All-items CPI - 23.17%<br />

<strong>The</strong> drastic declines shown in real incomes and expenditures between<br />

the two survey periods are dependent on the official (mis)measurement of<br />

inflation. Poverty results over time (the Foster Greer Thorbecke indices of<br />

Chater III), as well as wages adjusted for the qualities of human capital<br />

(Chapter IV), are similarly sensitive to the way the nominal value of money is<br />

deflated to account for price increases.<br />

It is difficult to state when, and how, the measurement of inflation<br />

diverged from actual price changes. <strong>The</strong> official cpr produced by CAPMAS<br />

probably overstated inflation for the first three years of the decade, and then<br />

subsequently began to understate it, to the point of the current, absuredly<br />

low, rates. In terms of policy prescriptions, the degree and the mechanism of<br />

the bias itself is less important than the de facto mismeasurement.<br />

V.B <strong>The</strong> Cost of Living and Measurement<br />

<strong>The</strong> theoretical relation between a price index and the true cost of<br />

living should introduce a discussion of the measurement of the cost of living.<br />

CAPMAS uses a Laspeyres-type estimator as Egypt's Consumer Price Index

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