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