Inflation

Guide Note:

Inflation is general increase in good and services over a period of time. Inflation is typically measured by the consumer price index and the producer price index. A persistent decline in the purchasing power of money can also be considered inflation.

Fast Facts:

1. Consumer Price Index (CPI) is a measure of the change in the cost of a fixed basket of goods
2. The basket of goods includes housing costs, electricity, food and transportation
3. The CPI is compiled by Bureau of Labor Statistics
4. CPI base year: 1982
5. CPI base: 100
6. 2007 average CPI: 207.342, which means that since 1982 there has been 107.342% inflation
7. Producer Price Index (PPI) is a measure of wholesale price levels in the economy

Using the CPI: Assume a basket of goods cost a total of $100 in, say, 2005. If that exact basket of goods cost $150 today, we would subtract todays cost by the year at which we are comparing (2005). Thus, prices would be inflated by 50 points. This number is represented, typically, as a percentage. So, in the example above there is a 50% inflation rate.