Cost of living index
Cost of living is the cost of maintaining a certain standart of living. A cost of living index is a price index that measures relative cost of living over time. Such cost of living index constructed to have a value of 100 in a given year (or period or place), called the base. A cost of living index value of 110 indicates that the current cost of living is ten percent higher than in the base year. Because the cost of living index provides measure of the change in the cost of living, it has no units.
There are many different methodologies that have been developed to calculate cost of living indexes, including methods that allow for substitution among items as relative prices change of cost living index.
In Britain the cost of living index was introduced in 1914 and based on the expenditure of a working class family of a man, woman, and three children; the standard is 100. Cost of living index known from 1947 as the Retail Price Index (RPI), it is revised to allow for inflation. Supplementary to the RPI are the Consumer's Expenditure Deflator (formerly Consumer Price Index) and the Tax and Price Index (TPI), introduced in 1979.
Comprehensive indexation has been advocated as a means of controlling inflation by linking all forms of income (such as wages and investment), contractual debts, and tax scales to the RPI. Cost of living Index-linked savings schemes were introduced in the UK in 1975. In the USA a consumer price index, based on the expenditure of families in the iron, steel, and related industries, was introduced in 1890. The present Cost of living index is based on the expenditure of the urban wage earner and clerical worker families in 46 large, medium, and small cities, the standard being 100. The cost of living index Increases in social security benefits are linked to cost of living index, as are many wage settlements.
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