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.
