Consumer Price Index

Deflation

A decrease in the overall level of prices of goods/services in an economy over a period of time.

CPI as an Economic Indicator

A measure of inflation

GDP Chain Price Index

A measure of the weighted average change of all new final goods/services produced in the United States.

Producer Price Index (PPI)

A measure of the weighted average change of price of common inputs bought by producers. It is used to predict future inflation.

Consumer Price Index (CPI)

A measure of the weighted average change of prices for goods/services bought by a typically family.

Disinflation

A slowdown in the inflation rate.

Inflation

A sustained increase in the overall level of prices of goods/services in an economy over a period of time.

CPI Calculation

CPI = Cost of Basket in Current Year / Cost of Basket in Base Year X 100

Inflation Rate

CPI of this Year - CPI of last Year / CPI of last Year X 100

CPI as Deflating

Converting quantities measured in current dollars into real values, eliminating effects of inflation

CPI as Indexing

Converting real quantities into current dollars

Problems with CPI

New goods, quality bias, and substation bias

Real Interest Rate (r)

The interest rate that is adjusted for inflation. r = i - inflation rate

Nominal Interest Rate (i)

The quoted interest rate.

Cost-Push Inflation

When an increase in prices is caused by a decrease in supply.

Demand-Pull Inflation

When an increase in prices is caused by an increase in demand.

Real Wage

Your nominal wage adjusted for inflation.

Nominal Wage

Your quoted dollar wage.