Definition: Cost of living index

Category: Consumer Price Index

The cost of living index (COLI) measures the change between two periods in the minimum expenditures that would be incurred by a utility-maximizing consumer, whose preferences or tastes remain unchanged, in order to maintain a given level of utility (or standard of living or welfare). As consumers may be expected to change the quantities they consume in response to changes in relative prices, the COLI is not a basket index. The expenditures in one or other, or possibly both, periods cannot usually be observed. COLIs cannot be directly calculated but may be approximated by superlative indices. http://www.ilo.org/public/english/bureau/stat/guides/cpi/index.htm