The Korean Journal of Economic Studies
Potential Bias in the CPI-Inflation Rates
Jaeyong Seo (Seoul National University) and Yongsung Chang (Seoul National University)Year 2022Vol. 70No. 2
AbstractWe propose a way to correct a potential bias in CPI-inflation rates. We consider three factors that may bias the CPI as a measure of true inflationary pressure in the economy: (1) market-based rental rates (2) ownersequivalence rents (3) operational loss caused by controlled prices of electricity and gas. When we consider all three factors above, the newly measured CPI-based inflation rates (as of December 2021) increases to 6.65% which is 2.95 percentage points higher than the official figure of 3.7%. Out of the total increase of 2.95 percentage points, 0.08 is due to the use of the KB rental index, 1.62 due to the inclusion of owners equivalence rents, and 1.25 due to the reflection of operational loss of the KEPCO and KOGAS.