Macroeconomics › Section I · Inflation › Topic I.1
Tracking inflation with a price index
Thousands of prices change every month, some up and some down. A price index squeezes them into one number, so that a single percentage can tell you how fast the cost of living is rising.
In this topic
- What inflation is, and what it is not
- Why economists use a basket
- Weights: big spending counts more
- Worked example: costing a basket
- Index numbers and the base year
- Worked example: building an index
- Any base year gives the same rates
- Percentage change, not points
- Monthly, 12-month and annualised rates
- Common mistakes to avoid
- Key takeaways
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