CPI inflation

Question 1

infaltino being 4% means

Answer 1

prices rising by 4%

Question 2

if inflation is 3% in y1 but 4% in y2 whwat can you tel me about prices in y2

Answer 2

rising faster

Question 3

3 in y1 to 4 in y2 means what type of inflation

Answer 3

rising inflation

Question 4

if infaltion rate in year 2 is 4% but 1% in year 3 , what do we have

Answer 4

disinflatino

Question 5

as long as inflatino rate is +ve ther is always an icnrease in

Answer 5

prices

Question 6

what is inflation

Answer 6

persistent increases of prices in an economy in a year

Question 7

what is disinflation

Answer 7

when the rate of infaltion is falling

inflation rate still +Ve

Question 8

what is deflation

Answer 8

price level is falling in econ

inflation rate is -ve

Question 9

how do countries measure infaltion

Answer 9

costructing a consumer price index

Question 10

from constucting a cpi what can coutnry calc

Answer 10

annual rates of inflatino

Question 11

why is cpi a useful way of measuring inflation

Answer 11

@ 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

Question 12

what ar ethe 4 steps for constructing the cpi

Answer 12

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

Question 13

how do we work out inflation with cpi

Answer 13

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

Question 14

rpi is an alterative

Answer 14

measure of inflaiton

Question 15

how do we cal rpi

Answer 15

exact same as cpi

but house prices included

and uses arithmetic mean - rpi gives hihger figurre

Question 16

whats the orst issue wth teh cpi

Answer 16

avg family idea

Question 17

whats wrong with teh avg family idea

Answer 17

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

Question 18

whats teh 2nd issue of cpi inflation measure

Answer 18

price fluctuatino of certain goods

Question 19

explain issue of cpi with price fluctuations of certain goods

Answer 19

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

Question 20

how can we get over issue of price fluctuation of g/s in econ

Answer 20

use core cpi

Question 21

what is core cpi

Answer 21

cpi-fluctuatin goods which gives us more realistic underlying inflaion rate

Question 22

where can we go if ew think changes in energt prices will affect CPI(price fluctuation of certian goods)

Answer 22

ppi

Question 23

what is ppi

Answer 23

producer price index

Question 24

what does ppi do

Answer 24

measures increase in £ of goods as leav factory

if they increase, this is due to increases in COP e.g energy

Question 25

if we see increases in ppi what can we expect

Answer 25

cpi due to those factors

Question 26

to sum up when do we go to core cpi

Answer 26

current cpi affected by goods

Question 27

to sum up when do we go to ppi

Answer 27

if we think in future ppi will be affected

Question 28

whats the 3rd issue with CPI

Answer 28

dont include hosuing costs liek ret, mortgae interest rate payment s

Question 29

why is not including housing costs in cpi an issue

Answer 29

hh spend high proprotion of income on these

Question 30

how do we get over issue of not including housing costs

Answer 30

use CPIH(HOUSING)

all hosuing costs in basket

+ this has become new headline measure of inlation

Question 31

whats the last issue of cpi

Answer 31

basket updates to slow

Question 32

explain issue of basket udpates being too slow

Answer 32

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