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?
In: 1
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.
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.
Inflation is generally the percentage change in CPI over a year.
CPI is the consumer price index. Basically, many households that represent the general population are surveyed on all of the products they buy in a year. These items are the put in to a “basket”
The value of this basket is recorded and the prices are then recorded each year. A chosen year is designated as the “base year” for calculations. To calculate CPI, you divide the current price of the basket by the base year price then multiply by 100.
So if the basket was $1000 in 2020 (base year), then $1200 in 2021
$1200/$1000 * 100 = 120
If its $1350 in 2021:
$1350/$1000 * 100 = 135
now to calculate inflation, you would calculate the percentage difference between 2 years. The inflation between 2021 and 2022 in this example would be:
( (CPI 2022) – (CPI 2021) ) / (CPI 2021) * 100
or
( (135 – 120) / 120 ) * 100 = 12.5% Inflation between 2021-2022
Inflation is generally the percentage change in CPI over a year.
CPI is the consumer price index. Basically, many households that represent the general population are surveyed on all of the products they buy in a year. These items are the put in to a “basket”
The value of this basket is recorded and the prices are then recorded each year. A chosen year is designated as the “base year” for calculations. To calculate CPI, you divide the current price of the basket by the base year price then multiply by 100.
So if the basket was $1000 in 2020 (base year), then $1200 in 2021
$1200/$1000 * 100 = 120
If its $1350 in 2021:
$1350/$1000 * 100 = 135
now to calculate inflation, you would calculate the percentage difference between 2 years. The inflation between 2021 and 2022 in this example would be:
( (CPI 2022) – (CPI 2021) ) / (CPI 2021) * 100
or
( (135 – 120) / 120 ) * 100 = 12.5% Inflation between 2021-2022
Inflation is generally the percentage change in CPI over a year.
CPI is the consumer price index. Basically, many households that represent the general population are surveyed on all of the products they buy in a year. These items are the put in to a “basket”
The value of this basket is recorded and the prices are then recorded each year. A chosen year is designated as the “base year” for calculations. To calculate CPI, you divide the current price of the basket by the base year price then multiply by 100.
So if the basket was $1000 in 2020 (base year), then $1200 in 2021
$1200/$1000 * 100 = 120
If its $1350 in 2021:
$1350/$1000 * 100 = 135
now to calculate inflation, you would calculate the percentage difference between 2 years. The inflation between 2021 and 2022 in this example would be:
( (CPI 2022) – (CPI 2021) ) / (CPI 2021) * 100
or
( (135 – 120) / 120 ) * 100 = 12.5% Inflation between 2021-2022
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