Estimating Upward Bias of Japanese Consumer Price Index Using Engel's Law

The Japanese Consumer Price Index (CPI) is considered to be upwardly biased.This paper estimated the Engel curve based on National Survey of Family Incomeand Expenditure data to measure the bias. The estimated bias for the period 1989to 2004 was 0.53 percentage points per annum. Correcting the bias led to a lowerinflation rate of 0.14 percent per year, against the official inflation rate of 0.65percent during the period. A demographic analysis showed that a household witha non-working spouse faced a larger bias suggesting that the opportunity cost ofshopping determines the size of the bias