MEASUREMENT,CAUSES AND CONSEQUENCES OF INFLATION
Inflation : measurement , causes and consequences
Measuring Inflation
The main measure of inflation is the consumer prices index (CPI) : a measure of changes in the price representative basket of consumer goods and services . Differs from retail prices index (RPI) in methodology and coverage.
- It forms the basis for the inflation target that the government requires the Bank of England's Monetary Policy Committee to achieve.
- It is also the main measure used in the rest of the European Union , where it is often referred to as the harmonised index of consumer prices (HICP).
CPI and most other measures of inflation are weighted price indices.
There are various stages in constructing a weighted price index:
1. Select a base year (standard year in which nothing unusual happened ).
2.The variable being measured is given a value of 100 in the base year and other years are compared to it.
3. Statisticians carry out the Family Expenditure Survey to see what people spend there money on ( in UK employed by ONS), involves sampling more than 6000 households.
4. From info gathered the statisticians decide which items to include in the price index. (a "shopping basket is created"), this is representative of around 650 goods and services.
5. These products have weights attached to them. The weights represent the proportion spent on the different items. e.g.) If it found that 10% of peoples expenditure goes on food , this will be given a weighting of 10/100 or 1/10.
6. Then one must find out whether the items have changed in price. (officials visit a range of outlets throughout the country each month)
The CPI and other Measures of Inflation
Another measure of inflation in the UK is the retail price index : measure of inflation that is used for adjusting pensions and other benefits to take account of changes in inflation and frequently used in wage negotiations. Differs from the consumer price index in methodology and coverage.
- Has been used for the
Measuring Inflation
The main measure of inflation is the consumer prices index (CPI) : a measure of changes in the price representative basket of consumer goods and services . Differs from retail prices index (RPI) in methodology and coverage.
- It forms the basis for the inflation target that the government requires the Bank of England's Monetary Policy Committee to achieve.
- It is also the main measure used in the rest of the European Union , where it is often referred to as the harmonised index of consumer prices (HICP).
CPI and most other measures of inflation are weighted price indices.
There are various stages in constructing a weighted price index:
1. Select a base year (standard year in which nothing unusual happened ).
2.The variable being measured is given a value of 100 in the base year and other years are compared to it.
3. Statisticians carry out the Family Expenditure Survey to see what people spend there money on ( in UK employed by ONS), involves sampling more than 6000 households.
4. From info gathered the statisticians decide which items to include in the price index. (a "shopping basket is created"), this is representative of around 650 goods and services.
5. These products have weights attached to them. The weights represent the proportion spent on the different items. e.g.) If it found that 10% of peoples expenditure goes on food , this will be given a weighting of 10/100 or 1/10.
6. Then one must find out whether the items have changed in price. (officials visit a range of outlets throughout the country each month)
The CPI and other Measures of Inflation
Another measure of inflation in the UK is the retail price index : measure of inflation that is used for adjusting pensions and other benefits to take account of changes in inflation and frequently used in wage negotiations. Differs from the consumer price index in methodology and coverage.
- Has been used for the