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inflation (calculating the inflation rate (month to same month prev year,…
inflation
calculating the inflation rate
expressed as an annual rate
month to same month prev year
(tn-tn-1)/tn-1 * 100
subject to considerable fluctuations
suffers from the base effect
annual average to annual average
short term fluctuations are eliminated
month on prev month
((tn)/tn-1)^12)-1)*100
quarter average on quarter average
CPI
representative of consumer goods
five expenditure groups
primary urban areas
secondary urban areas
rural areas
total country
nine provinces
deflating
the effect of price increases is removed
advantages and disadvantages
pro
calculated directly, there for becomes available quickly
cons
upwardly based
not every consumer goods and services are included
the average house hold doesn't exist
index
a series of index numbers with a fixed frequency
construction
choice of items
depend on the relative significance of the items
choice of base period
should be recent
economical stable period
census years
assignment of weights
assign by relative importance. usually sum up to 100 or 1
collection of data
calculation
price indices
price index number = (cost of basket in current period/cost of basket in base period) * 100
construction s standard
price Deflators
nominal / real
pros and cons
pros
more comprehensive coverage of the price level than explicit price incidences
implicit deflators are based on current weights and there for reflect actual expenditure
well suited for international comparisons
the public are primarily interested in the prices of limited baskets
they only measure pure price changes between the base period and the current period
time lag
Laspeyres
I_t=(ΣP_0 Q_0 (P_t/P_0 ))/(ΣP_0 Q_0 )
PPI
five types
final manufactured goods
intermediate manufactured goods
electricity and water
mining and agriculture
forestry
inflation is defined as a sustained increase in the general price level.