Monday

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 8 The Data22 of Macroeconomics
Chapter 24 of 36 Measuring The Cost of Living
Section 4 of 15
…
The Bureau of Labor Statistics (BLS) uses data of prices of thousands of goods to calculate the consumer price index (CPI) measure of inflation.
Here we continue consideration of a simple economy where consumers buy only two goods, hot dogs and hamburgers.
1. Establish the basket of goods
2. Find the price of each good for each year
3. Compute the basket's cost for each year
4. Choose a base year and compute the CPI
5. Compute the inflation rate
…
·Step 4· Choose a base year and compute the index
Designate one year as the base year, here 2008.
This is a base against which other years are compared, most often the first year.
Once the base year is chosen the index is calculated as follows.
In the Table 1 example
2008 is the base year.
In 2008, the basket of hot dogs and hamburgers costs $8.
So, the price of the basket in all years is divided by $8 and multiplied by 100
…
The consumer price index is 100 in 2008.
In 2009 the consumer price index is $14/$8 x 100 = 175.
The price of the basket in 2009 is 175 percent of its price in the 2008 base year.
A basket of goods that costs $100 in the base year costs $175 in 2009.
…
In 2010 the consumer price index is $20/$8 x 100 = 250.
The price of the basket in 2010 is 250 percent of its price in the 2008 base year.
A basket of goods that costs $100 in the base year costs $250 in 2010.
…
·Step 5· Compute the inflation rate
Use the consumer price index to calculate the inflation rate.
This is the consumer price index percentage change from the previous period.
Per Table 1 Step 5, the inflation rates are
75/100 = 75 percent in 2009
75/175 = 43 percent in 2010
…
The BLS calculates other inflation rates including the producer price index (PPI).
This measures the cost of a basket of goods bought by firms rather than consumers.
Firms eventually pass on their costs to consumers through higher consumer prices.
So, changes in the PPI are useful in predicting future changes in the CPI.
… …
predicting future changes
(Japanese):
shourai no henka o yosoku suru

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