Inflation Rate

Essay by gophergirlUniversity, Bachelor'sA+, October 2007

download word file, 1 pages 0.0

Define your economic indicator. How is your assigned economic indicator measured by the government? (What formula or surveytechnique?) What does it represent with respect to the Americaneconomy?The inflation rate is the rate of increase in the prices of goods and services over a given period of time. As inflation is a prolonged rise in the general level of prices, a price index must be created for measurement purposes. A price index is “a number that summarizes what happens to a weighted composite of prices of a selection of goods (often called a market basket of goods) over time. An index converts prices relative to the base year prices” (Colander, 2004). The Bureau of Labor Statistics (BLS) has a variety of indexes that can measure different facets of inflation with the Consumer Price Index (CPI) being the most commonly used in reports about the economy and is the most significant to consumers.

There are two consumer price indexes that measure for two population groups:1. CPI-U is used for all urban consumers and represents about 80% of the U.S. population.

2.CPI-W is used for urban wage earners and clerical workers and represents about 32% of the U.S. population.

Other indexes include the GDP deflator and producer price index (PPI). The GDP deflator is a total output deflator. It is “an index of the price level of aggregate output, or the average price of the components in total output (or GDP), relative to a base year” (Colander, 2004). The PPI index includes goods that many consumers do not purchase and measures changes in prices from the sellers’ perspective. It is “an index of prices that measures average change in the selling prices received by domestic producers of goods and services over time (Colander, 2004).

The inflation rate is directly related to consumer...