When measuring price level fluctuations, economists look at changes in the average price level of goods and services in a nation. To measure the price level, economists construct a price index. The two most common price indexes are the consumer price indexand the producer price index:
Consumer Price Index (CPI)
A measure of the average change over time in the price of a fixed group of products
The Bureau of Labor Statistics (BLS) calculates and reports the CPI each month
1. The bureau selects a base year against which to measure price changes
2. The bureau selects a representative sample of commonly purchased consumer items, called the market basket. This sample includes items that the typical consumer might buy - i.e. food, clothing, shelter, utilities, transportation, entertainment, and health care.
3. The bureau samples the prices of the goods and services in the market basket in selected areas across the nation
Producer Price Index (PPI)
Is a measure of the average change over time in the prices of goods and services bought by producers
Is compiled for selected types of products as well as for production stages or particular industries
Measuring Inflation
When measuring price level fluctuations, economists look at changes in the average price level of goods and services in a nation. To measure the price level, economists construct a price index. The two most common price indexes are the consumer price index and the producer price index:Consumer Price Index (CPI)
Producer Price Index (PPI)