A rise in the macro price level
Measured by calculating the Inflation rate of a price index
Inflation rates differ across countries
Measured Quarterly/Monthly/Weekly
Consumer Price Index Cost of Living Index Producer Price Index Commodity Price Index Core Price Index GDP Deflator
Measure of the average price of consumer goods and services purchased by households
Used by most of the developed countries to measure Inflation
Calculated monthly and is one of the most closely watched national economic statistics
2 basic types of data are needed to construct the CPI: - Price Data
- Weighting Data
Calculated using a Laspeyres Index
Laspeyres Index uses the base year quantities
PIt (L) = ∑ Wi ( Pit / Pio ) where, Wi = Qio Pio / ∑ Qio Pio
PIt (L) = ∑ ( Qio Pio / ∑ Qio Pio ) ( Pit / Pio )
PIt (L) = ∑ Qio Pit / ∑ Qio Pio
PIt (L) -> Laspeyres Price Index
Period Rice Shirt House
Price Quantity Price Quantity Price Quantity
1998 10 10,000 120 400 780 50
2006 15 12,000 200 500 1000 75
15*10,000 + 200*400 + 1000*50Consumer Price Index = ------------------------------ 10*10,000 + 120*400 + 780*50
= 1.497 %
= 149.7
Eg: CPI in 2005 -> 150 CPI in 2006 -> 160
160 – 150Inflation Rate = ----------- * 100 ( 2005 – 06) 150 = 6.67 %
As an economic Indicator As a deflator of other economic series As a means for Indexation To compare the Cost of Living in different
cities To forecast future consumer expenditures To assess a nation’s progress towards
economic stability
Switching over from WPI to CPI is risky and unwieldy
Too much of a lag in reporting CPI numbers
CPI for Industrial Workers ( CPI-IW ) 145 for August 2008 ( Base : 2001 = 100 )
Source : Labour Bureau, Ministry of Labour, Government of India
CPI for Urban Non Manual Employees ( CPI-UNME) 528 for March 2008
( Base : 1984-85 = 100 ) Source : Central Statistical Organization,
Government of India CPI for Agricultural/Rural Labourers ( CPI-AL )
450 for August 2008 ( Base : 1986-87=100) Source : Labour Bureau, Ministry of Labour,
Government of India
CPI for All Urban Consumers ( CPI-U) 218.783 ( Base : 1982-84 = 100 )
CPI for Urban Wage Earners and Clerical Workers ( CPI – W )
214.935 ( Base : 1982-84 = 100 ) Chained CPI for All Urban Consumers ( C-CPI-U )
125.774 ( Base : 1999 =100 )
September 2008 Source : Bureau of Labor Statistics,
US Dept. of Labour