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The Consumer Price Index


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Measuring Inflation
Inflation refers to an increase in the overall level of prices in an economy, Because inflation has economic costs and also represents changes in the cost of living for households and costs of production for businesses, it's important to be able to measure inflation properly.

There are a number of different ways to measure inflation. One option is to look at the prices of everything produced in an economy (weighted by how much of each of those things is produced), which results in what is known as the GDP deflator. Another option is to survey a sample of producers in order to measure producers get for their output, which results in the Producer Price Index. However, because one of the purposes of measuring inflation is to understand changes in the cost of living for households, inflation is usually measured using the Consumer Price Index, which measures the prices that consumers pay for a range of typical household goods and services.

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