Open blog #3 inflation and “CPI”

This week I learn two interesting definition, inflation and “CPI”.

The inflation is the ongoing increases in the general level of prices. So with inflation, what that means is the overall level of prices are going up and up. Don’t confuse inflation, increases in the general level of prices, with the increase in the price of a particular good. Like, for example, you can see an increase in the price of gasoline. Gasoline prices are going to be up. But that’s not necessarily inflation. As I mention before, inflation is ongoing increases in the general level of prices.  

To measure inflation, we use the Consumer Price Index, or CPI. CPI is a kind of index. Index is, from statistics, a selected sample of population. So you don’t measure the entire population, so we don’t go out and measure all the prices, we just measure a selected sample. And the movement in that selected sample is going to mimic the movement of overall population. So let’s move back to the CPI. It is a basketful of goods that an urban family of four purchases no a regular basis. The idea is movements in the CPI are going to measure, or mimic, the overall rate of inflation. 

Citation:

Mankiw, Brief Principles of Macroeconomics, 7th edition