When they say inflation is 7%, is that just compared to items one year ago?
Now that we’re in a new year, shouldn’t there be a sudden reset in inflation being 2-3% again?
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It depends on the country and the calculating agency, but it is usually measured monthly or quarterly.
It is measured by comparing the price changes on a basket of underlying goods to the previous period e.g. this month to last month, or whatever period. The basket of goods is supposed to be representative of the spending habits of the average consumer (or similar).
What is in the basket varies by country/agency and can change over time. For example, below is the basket of goods and calculation method used by the Australian Bureau of Statistics as at 2020:
The Consumer Price Index (CPI) measures quarterly changes in the price of a ‘basket’ of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households). This ‘basket’ covers a wide range of goods and services, arranged in the following eleven groups:
Food and non-alcoholic beverages
Alcohol and tobacco
Clothing and footwear
Housing
Furnishings, household equipment and services
Health
Transport
Communication
Recreation and culture
Education
Insurance and financial services.
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