Macroeconomics › Section I · Inflation › Topic I.2
Measuring changes in the cost of living
The Consumer Price Index is the number behind pay rises, pension increases and tax brackets, so how it is built matters to almost everyone. This topic opens the basket, shows why a fixed basket tends to overstate the rise in living costs, and compares the CPI with the other price indexes economists use.
In this topic
- Who builds the CPI, and how
- What is in the basket
- A fixed basket versus the cost of living
- Substitution bias
- Worked example: switching from beef to chicken
- Quality, new goods and new outlets
- How the BLS reduces the biases
- Core inflation
- Other price indexes
- Worked example: reading four measures at once
- Common mistakes to avoid
- Key takeaways
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