Types of Inflation Flashcards
what a head line measure
the CPI is the headline measure of inflation in aus, it is a broad measure of cost changes in new purchases made by wage/salary household in capital cities
describe 2 short terms factors influencing inflation (headline)
- price of agricultural commodities change each season (price falls when supply is up but rise in shortage or out of season)
- Macroeconomic events - fall in interest rates mean household spending on mortgages have fallen
what are underlying measures
gives more accurate picture of the key drivers of price change by removing short term influences
describe the trimmed mean - a measure to calculate underlying weight
found by arranging all price movements from largest to smallest and then trimming away the top and bottom 15% of price movements
describe the weighted median - a measure to calculate underlying weight
the inflation rate of the item at the middle of price changes in CPI basket (median)
overall, state the effectiveness of each measure(headline/underlying)
underlying gives a better picture of true rate of inflation than the headline rate
what is the CPI imperfect
only shows price movents in cities (metro) and is not seen as the true cost of living
what are 2 reasons the CPI is not perfect
- does not reflect changing consumer preferences or substitutions which consumers make from day to day relative to price change
- Does not account for changes in quality of goods over time, so price increases are likely to be overstated
make a statement describing how CPI is a good measure
helps dcision making of pensions/contracts, helps make gov policy
what are 3 other good price indice reports
PPI - producer price
XPI - export price
BPI - building pirce
in what years from the 50s was there igh inflation
50s, 70s, 80s
in what years from the 50s was there low inflation
60s, 90s, 2000s
has the aus economy ever deflated
apart from 1998 no
