It refers to the cost of living, or cost of living, when referring to the calculation or estimation of goods and services that households need to consume in order to achieve a certain degree of satisfaction or reach a certain standard of living. We speak therefore of a theoretical concept expressed by means of an index that measures the variations in their spending for the attainment of said objective.
This concept of cost of living is very present in the field of public economy, although its main problem lies in the difficulty in making accurate calculations, since household satisfaction is based on elements of a subjective nature.
The cost of living is usually associated with another concept such as purchasing power due to its nature and explanation. Both definitions become useful tools when comparing living conditions between different countries according to the prices of goods and services demanded by their inhabitants. In that sense, there are many other models that serve this purpose, such as the well-known Big Mac Index .
Cost of living calculation
Basically, a series of products from the basic consumption basket of population groups are taken as a reference to subsequently establish weighted results that refer to the entire territory. On the other hand, the goods or services included in the measurement are usually of the so-called essentials and which are normally consumed even by families of less economically favored class.
Taking into account the levels of consumption represented in this basket, the cost of living would be the amount of money that a family needs to access it in a given period of time. Due to this fact, the Consumer Price Index (CPI) is commonly used as a reference when talking about the tastes and customs of households in a country or territory.
Based on the price data offered by this meter, it is possible to analyze existing trends in terms of population consumption in certain periods of time and express these variations by means of percentages with respect to a base number or year.