Measuring Inflation Flashcards

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Note: We may include questions that have multiple correct answers. It's useful to remember specific examples to understand these concepts better.

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What is inflation?

A general rise in average prices over time, shown as a percentage.

Who measures UK inflation?

The Office for National Statistics (ONS).

What does CPI stand for, and what does it measure?

Consumer Prices Index. It tracks the average change in prices of a basket of goods and services.

What is a basket of goods and services?

A list of common items households buy. It is used to track price changes over time.

Why are items in the CPI basket given weights?

To show how much people spend on them. Bigger weights mean a bigger effect on the index.

What is the base year in an index, and what value does it have?

It is the reference year for comparison. Its index value is set to 100.

How do you find an index number from two basket costs?

Divide the current basket cost by the base-year cost, then multiply by 100.

How do you work out the inflation rate using index numbers?

Subtract the old index from the new one, divide by the old one, then multiply by 100.

How often are CPI prices collected, and how is inflation usually reported?

Prices are collected each month. Inflation is reported as the percentage change over the last 12 months.

Why is the CPI basket updated each year?

To reflect changes in what people buy, such as new products or items people now buy less often.

Give one limitation of CPI as a measure of inflation.

It does not include mortgage interest payments, so some housing cost changes are missed.

How is RPI different from CPI?

RPI includes some housing costs like mortgage interest and often gives a higher rate. CPI is the main official measure used by the government.