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Measuring Inflation: Consumer Price Index (CPI)
- Aim is to measure how consumers’ purchasing power is affected by rising prices
- Household expenditure survey- seeks to measure what people spend their money on. And therefore get a typical basket of goods.
- This basket of goods gives a relative importance to each different item. E.g. if housing increased by 10% this would have more effect than an increase in radios
- The basket of goods is updated each year to take into account changes in expenditure
- Every month changes in prices of goods and services are monitored and combined into a single figure with using the weights in the basket.
E.G. (1999 all price index is 100)
Good |
Weight |
index in 2000 |
Total Value 2000 |
Bread |
0.10 |
200 |
20 |
Tea |
0.25 |
80 |
20 |
Cloth |
0.25 |
100 |
25 |
Coal |
0.40 |
150 |
60 |
Total |
1.00 |
|
125 |
Therefore inflation is 25%
Essays and Revision Notes on Inflation
Hyperinflation - Causes and Costs
Inflation Essays
- Discuss the Difficulties of Controlling Inflation
- Does Devaluation Cause Inflation
- Should the Aim of the Government be to Attain Low Inflation?
- Explain What Can Cause a Sustained Increase in the Rate of Inflation
- Essay on Inflation - Is Inflation Harmful?
Measuring Inflation at UK Statistics