I have been researching the literature of consumption inequality for my project. Most of the articles have deflated the consumption datasets, before measuring the inequalities with different indices. There is quote from Orazio P. Attanasio and Luigi Pistaferri, Consumption Inequality , 2016 which explains the reasons of deflating consumption values:
Survey data like the Consumer Expenditure Survey measure expenditure, which is the product of prices and quantities. To make comparison of consumption across periods meaningful, researchers deflate expenditure using an overall measure of the cost of living, typically the Consumer Price Index (CPI). Indeed, as mentioned above, the CE is collected primarily to compute the weights for the CPI. However, average weights may not be relevant for all households. It is possible that the composition of the consumption basket varies substantially and systematically across different households, as a direct consequence of differences in access to resources as well as needs and tastes.
However, because the datasets include different consumption levels of different households for different years, deflating the values of consumption of each households in a certain year resembles to divide all values to a constant. Is there any reason why deflating the consumption levels is a good practice? And what can be the benefits of deflating consumption levels for the research on the relationship between consumption and income inequality?
