ECON 162 11 6 15 Inflation A sustained increase in the average level of prices over time OR A sustained decrease in the value domestic purchasing power of money Inflation is an increase in the absolute level of prices but not necessarily relative prices Consumer Price Index CPI 1913 10 CPI 1983 100 CPI 2006 200 CPI 2015 218 One night PA 2 PB 1 W 10 5 Apples 20 4 20 2 PA 4 PB 2 W 20 W Pa W Pb Pa Pb 10 2 10 1 4 2 1 2 10Bananas Measures of Inflation BEA BLS 3 Consumer Price Index CPI 4 Producer Price Index PPI Consumer Price Index 1 GDP Price Deflator 2 Personal Consumption Expenditure PCE Price Index Is a measure of the prices paid by a typical urban household for a select bundle of goods and services 8 Categories Each category receives a weight based on consumer expenditures 80 000 Products 3 000 Price Checkers Selective Fixed Weight Price Index Substitution Bias Higher Estimate of Inflation Used For Cost of Living Adjustments GDP Price Deflator Comprehensive Flexible Weight Price Index No Substitution Bias Not Used For Cost of Living Adjustments Lower Estimate of Inflation
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