Transcript Measuring Inflation and Prices

Measuring Inflation and Prices
• Consumer Price Index (CPI)– U and R
• GDP Deflator
– For deriving “Real GDP”
• Wholesale Price Index (WPI)
• Producer Price Index (PPI)
– Purchases by manufacturers
• Purchasing Power Parities
– For International Comparisons
Bureau of Labor Statistics:
Consumer Price Index (U)
• cost of a market basket of goods
purchased by a typical urban consumer.
• Used to adjust poverty levels, social
security benefits, tax rates….
• Overestimates inflation by 1.1 per year
How CPI Overestimates
inflation
• Substitution effect:
– When prices increase, we switch to other
items
• Changes in Quality of the product
– i.e., Computers
• New Outlets (Wal Mart)
– CPI measures average prices at many
outlets, but consumer buy more where the
price is cheaper
Consequences of CPI
overestimates
• Overestimates of Poverty rates
• Higher Cost of Living Adjustments to
wages and Social Security benefits
• Tax Brackets raised higher: Lower Tax
Rates
Measuring Unemployment
(Bureau of Labor Statistics Monthly Survey)
Calculating Unemployment
Rates
• Population in Civilian Labor Force:
Civilians working or looking for work
• Unemployment Rate = % of Labor
Force looking for Work
Problems with
Unemployment Rate
• Housepersons not counted in labor
force (LF)
• Discouraged workers not counted in LF
• Employees on strike are counted
Employed
• Part time workers looking for Full time
work are counted Employed
• Armed Services Personnel not counted
in LF