Th2.1: Limitations of CPI Flashcards
How is CPI not totally representative?
it is impossible for the figure to take into account every single good that is sold in the country
Different households spend different amounts of each good, meaning…
CPI only measures an average rate of inflation
What does CPI not include and how would this affect things/
it does not include price of housing and so, since this has tended to rise more than the price of other goods, the data may be lower than it should be
Why is CPI difficult to make comparisons with?
it is more recent than RPI and was only used since 1996 with estimates going back to 1988 - can only be accurately compared to then
Why do some people argue that all inflation indices overestimate inflation?
they don’t take into account that goods and services have improved in quality, and so will obviously be more expensive - no way of indicating change of goods bought
