CPI inflation Flashcards
infaltino being 4% means
prices rising by 4%
if inflation is 3% in y1 but 4% in y2 whwat can you tel me about prices in y2
rising faster
3 in y1 to 4 in y2 means what type of inflation
rising inflation
if infaltion rate in year 2 is 4% but 1% in year 3 , what do we have
disinflatino
as long as inflatino rate is +ve ther is always an icnrease in
prices
what is inflation
persistent increases of prices in an economy in a year
what is disinflation
when the rate of infaltion is falling
inflation rate still +Ve
what is deflation
price level is falling in econ
inflation rate is -ve
how do countries measure infaltion
costructing a consumer price index
from constucting a cpi what can coutnry calc
annual rates of inflatino
why is cpi a useful way of measuring inflation
@ the end inflaiton rates given tells us about the rise in prices of g/s consumers often buying
so inflation rate more applicable and meaning to hh
what ar ethe 4 steps for constructing the cpi
family expenditure survey is carried out e.g what bought
consumer basket of the most popular goods and services is formed with avg prices attached
prices of g/s weighted based on % of income (0-1)
weighted prices are added to give price of the basket
how do we work out inflation with cpi
base year selected with index value of 100
wrighted basket prices converted into index numbers
%change calculations done to work out annual inflation rates
basket updated yearly to reflect changing consumer tastes + weights adapt
rpi is an alterative
measure of inflaiton
how do we cal rpi
exact same as cpi
but house prices included
and uses arithmetic mean - rpi gives hihger figurre
whats the orst issue wth teh cpi
avg family idea
whats wrong with teh avg family idea
personal infltion rates differ as not everyone buys all g/s in basket
high Y spend on foreign holidays, this is in their basket , so if prices rise of FH increase inflation - this represents IR for high Y households but not low
low Y hh spend money on bus fares if they go up this increases ht eheadline IR but but not affect IR of rich but headline will say prices increase for everyone
so not good representative measure
whats teh 2nd issue of cpi inflation measure
price fluctuatino of certain goods
explain issue of cpi with price fluctuations of certain goods
food/energy subject to big fuctuations due to inelastic d/s
so if eithe rshift theres bug fluctuations in price
these are heavily weighted in CPI as we spend lots of money on em - necessities
this affects overakk CPI rate
so if fuel increases IR increases however its just hte £ of fuel not all g.s in econ inrease
how can we get over issue of price fluctuation of g/s in econ
use core cpi
what is core cpi
cpi-fluctuatin goods which gives us more realistic underlying inflaion rate
where can we go if ew think changes in energt prices will affect CPI(price fluctuation of certian goods)
ppi
what is ppi
producer price index
what does ppi do
measures increase in £ of goods as leav factory
if they increase, this is due to increases in COP e.g energy
if we see increases in ppi what can we expect
cpi due to those factors
to sum up when do we go to core cpi
current cpi affected by goods
to sum up when do we go to ppi
if we think in future ppi will be affected
whats the 3rd issue with CPI
dont include hosuing costs liek ret, mortgae interest rate payment s
why is not including housing costs in cpi an issue
hh spend high proprotion of income on these
how do we get over issue of not including housing costs
use CPIH(HOUSING)
all hosuing costs in basket
+ this has become new headline measure of inlation
whats the last issue of cpi
basket updates to slow
explain issue of basket udpates being too slow
once a year may not be quick or good enough
especially if consumption habits change faster *(esp due to increase use of internet and influencing from celebs and online figure )(
this is not representatinoal enough of current consumer habits in the economy
