CPI inflation measure

• What is inflation?

  Inflation is the persistent increase of prices in an economy over a year.
• What does a four percent inflation rate indicate for year two?

  It means prices are rising by four percent in year two.
• How does the inflation rate in year one compare to year two?

  In year one, inflation was three percent, which is lower than the four percent in year two.
• What is meant by rising inflation?

  Rising inflation refers to an increase in the inflation rate compared to the previous year.
• What does disinflation indicate about inflation rates?

  Disinflation indicates that inflation is still positive but at a slower rate than the previous year.
• What is the difference between disinflation and deflation?

  Disinflation is a decrease in the rate of inflation, while deflation is a negative inflation rate indicating falling prices.
• What is the inflation rate in year four?

  The inflation rate in year four is minus two percent, indicating deflation.
• How do countries measure inflation?

  Countries measure inflation by constructing a Consumer Price Index (CPI).
• What does the Consumer Price Index (CPI) tell us?

  The CPI tells us about the rises in prices of goods and services that consumers are buying.
• What is the purpose of the family expenditure survey?

  The family expenditure survey collects data on household spending habits over a fortnightly period.
• What information do households provide in the family expenditure survey?

  Households provide information on the goods and services they buy, prices paid, quantities, and percentage of income spent.
• What is the consumer basket in the context of CPI?

  The consumer basket is an imaginary collection of the most popular goods and services purchased by households.
• How many different goods and services are typically in the UK CPI basket?

  There are around 700 different goods and services in the UK CPI basket.
• How are the weights for goods in the CPI basket determined?

  The weights are based on the percentage of income that households spend on each good or service.
• What happens when the price of a heavily weighted good increases?

  When the price of a heavily weighted good increases, it significantly affects the overall inflation rate.
• What were the total weighted prices of the basket in years one, two, and three?

  Year one: £3,000; year two: £3,100; year three: £3,150.
• What is the base year in constructing the CPI index?

  The base year is the year assigned an index number of 100.
• How do you convert other year numbers into index form?

  You divide the year number by the base year number and multiply by 100.
• What is the index number for year two if the total weighted price is £3,100?

  The index number for year two is 103.33.
• How do you calculate the annual inflation rate for year two?

  You calculate it by finding the percentage change between the index numbers for year one and year two.
• What is the inflation rate for year two?

  The inflation rate for year two is 3.33%.
• What is the inflation rate for year three?

  The inflation rate for year three is 1.61%.
• How often is the CPI basket updated?

  The CPI basket is updated yearly.
• What is the Retail Price Index (RPI)?

  The RPI is an alternative measure of inflation that includes housing costs.
• How does the RPI differ from the CPI?

  The RPI includes housing costs and uses an arithmetic mean, while the CPI uses a geometric mean.
• What is a potential issue with the CPI regarding personal inflation rates?

  Personal inflation rates differ among households, meaning the CPI may not represent everyone's experience.
• How can significant price fluctuations affect the CPI?

  Significant price fluctuations in essential goods can distort the overall CPI inflation rate.
• What is the core CPI?

  The core CPI is the CPI index excluding items that are subject to significant price fluctuations.
• What does the Producer Price Index (PPI) measure?

  The PPI measures increases in the price of goods as they leave the factory gate.
• How can the PPI be used to predict future CPI changes?

  If PPI inflation rates are rising, it may indicate future increases in CPI due to rising production costs.
• What is a potential issue with the CPI regarding housing costs?

  The CPI does not include housing costs such as rent and mortgage payments.
• What is the CPIH?

  The CPIH includes housing costs in the CPI basket and is considered a new headline measure of inflation.
• What is a criticism regarding the frequency of CPI basket updates?

  The CPI basket updates once a year, which may not be fast enough to reflect changing consumption habits.
• What are the key concepts related to inflation measurement?

  • Inflation is the persistent increase in prices.
  • CPI measures inflation based on consumer goods and services.
  • RPI includes housing costs and uses an arithmetic mean.
  • Personal inflation rates can differ among households.
  • CPI does not include housing costs.
  • Core CPI excludes volatile items.
  • PPI measures producer prices and can predict CPI changes.