Inflation

Question 1

What is the consumer price index (CPI)?

Answer 1

A measure of the general level of prices in the UK adopted as the governments inflation target since Dec 2003

Question 2

What is the CPIH?

Answer 2

• a version of the CPI that takes into account the housing costs of owner occupiers and the council tax

Question 3

What is RPI?

Answer 3

• a measure of the average level of prices in the UK

Question 4

Features of CPI?

Answer 4

• based on consumption patterns of households.

- based on prices of a bundle of goods and services - collated through the Human Expenditure survey

Question 5

Features of the retail price index (RPI) ?

Answer 5

• includes mortgage interest payments
• includes council tax
• based on basket of goods and services

Question 6

What does the RPI exclude?

Answer 6

Pensioner households + highest income households

Question 7

How is data collected of the CPI?

Answer 7

Household expenditure survey

Measures what people spend on their money on + to find typical spending patterns

Question 8

What are the top 12 categories of goods and services?

Answer 8

Food and drink 
, alcohol and tobacco 
Clothing and footwear
Housing, water, gas , electricity 
Furniture and household equipment 
Health
Transport 
Communication 
Recreation and culture 
Education 
Restaurants and hotels

Question 9

How to calculate inflation using the CPI?

Answer 9

Weighting of good x the price index

Question 10

Some problems with Measuring Inflation

Answer 10

CPI isn’t fully representative - so inaccurate for anyone outside the average

Spending habits vary from person to person and from household to household

Changing quality of a good may be the reason for price changes not inflation

CPI is slow to respond to new products and services that may enter the market