Consumption Behavior of Elderly Households and Price Index

This paper constructs a price index for elderly households in which differences in expenditure share and points of purchase are explicitly taken into account. Elderly households spend more on food and medical care, while younger households spend more on education, transportation, and communications. As for points of purchase, in general, elderly households spend less in discount stores. These differences result in an underestimation of the inflation rate for elderly households by 2%, of which, 1.5% is due to differences in expenditure share and 0.5% is due to differences in points of purchase. However, even after taking such differences into account, the inflation rate for the elderly is less than that derived from the official CPI, which does not take into account points of purchase. Accordingly, the existing price indexation of pension benefits likely results in higher-than-appropriate benefit levels.