Measures of Inflation

By: EconomyWatch   Date: 13 October 2010

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Measures of Inflation, which literally means proliferation, determines the certain change, or better to say increase, of the price of goods and other services. Combine measurement of the escalation of the price of general goods and services gives the picture of general price change.

  • Tools of Measurement:
    • Consumer Price Index: As the name suggests, this index shows the alteration of values of the consumers' goods and services. For example, from this index, the change of prices of food materials, clothes can be obtained.
       
    • Producer Price Index: This index gives the change of the selling prices of the produce who sell goods. To compute this index, the mean of all the changes over a year is usually been taken.
  • Accuracy of the measurement:

    To measure the inflation correctly, i.e to get the accurate figure, certain things have to be kept in mind. Firstly, the type of the collection of market prices has to be decided; secondly, attention must be given at the time of measuring the change of prices, and lastly, for calculating the sum total certain rules has to be followed to coalesce those changing figures. This calculations are done with the help of the Theory of Index numbers.

     

  • Utility of this measurement:
    • Influence on Economic Welfare: Inflation has an effect on the economic welfare. So it will serve as a target of the public policy. Therefore, for this reason, inflation measurement is pretty much important.
       
    • Affect on other economic figures: Since the computations are estimated by exploding the nominal values with a price index, measures of inflation has a clear effect on the construction of other economic figures such as Gross Domestic Product.
       
    • Effect on Economic Conclusions: Every now and then economic resolutions depend directly on the published measurement of inflation. So correct measurement of inflation is badly needed.

    To Know more about the measures of inflation one may go through the following links listed below:
     

  • Consumer Price Index
  • Commodity Price Index
  • Cost of Living Index
  • GDP Deflater
  • Producer Price Index
  • Wholesale Price Index
  • Capital Goods Price Index

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