Inflation is the general increase in the prices of goods and services within a given time. However, how general is this? You've probably come across terms such as "real inflation" or the "CPI". The latter, which stands for Consumer Price Index, is announced statistics made by the government, which measures inflation based on a basket of goods.
But, it is constantly confirmed that the CPI does not reflect on the real inflation, as the basket of goods and services is biased. For example, the government can choose goods A, B and C, which only experienced a 3% increase in price, for its basket, while the goods D, F, G experienced 10% inflation.
But, then again, even if you count all goods and services in an economy, how useful would that metric be? If we counted D, F and G, and those six were the only goods in the economy, we'd have a 6.5% inflation rate. (The average of 3 and 10). But human action comes into the equation, and things get messy. For example, if Alice depends on goods D, F and G, while Charlie only wants A, B and C, then inflation clearly influences Alice more than it does Charlie.
This raises the issue of whether it is possible to measure / quantify inflation. What do you think? The Austrian school might have the answer, but I'd rather see what you think about inflation, and is it meaningful to try and measure it? Or, how meaningful is it?
The inflation rate is the rate of change of the price of goods and services over time. It can be measured by using the Consumer Price Index, which tracks the different prices of goods and services. The limitation, however, of using CPI as a basis is that its basis may not reflect the diversity of individual consumption patterns. It assumes that the consumers do not change their spending behavior because of changes in price. (controlling for the effect of other variables) and shocks A person's private experience with money may be adjusted. This means that the CPI is a poor measure of personal money experience. The type of people Recessions are perceived in different ways based on spending behaviors. People who rely much on high-priced goods will be most affected. According to the Austrian School of Economics, one does not have enough items of inflation in order to cope with the crisis, like CPI. It just focuses on the position which the currency takes and its perceived value. Even considering such limitations, the importance of measuring inflation comes into view for policymaking. This technique will be utilized in economical planning and comparative analysis. These provide a general insight into the processes in an economy. It is necessary to use other measures besides estimating the impact of the recession, and at the same time appreciate the limitations of such measures To completely understand the impact brought about by the recession.
I think inflation rate in basket of goods and services already represent the actual thing, like medical inflation, education inflation, foods inflation, housing inflation etc. But I wish the statistic they got after counting all the items instead of only few items.
Like foods inflation, I expect they've check chicken, egg, rice, flour, cookie, cake, vegetable, bread etc inflations, instead of only pick chicken, egg and rice inflations then claim to be whole foods inflation.
If you think about it, every metric in economics carries a significant degree of unreliability on how accurately it represents what it presumably measures; inflation, minimum wage, unemployment rate, gross domestic product, consumer price index, interest rates, tax rates. Every measure is the result of humans trying to quantify the economy. This overconfidence, coupled with a lack of humility in believing we can fully understand and predict human behavior, is undoubtedly, in my view, why these metrics are inherently flawed and fallible.
The government want to make their citizen fear.
High unemployment rate, high inflation rate, minimum rate etc all of them enforce people to stay in their current jobs, as long as they get paid with minimum rate, they're better than unemployed. They make the employees to not out by telling there are many people are still looking for a job.
Valid yes on how inflation is taken as a group and I think the need for a holistic approach in order to closely match the real inflation what the consumer faces. The CPI and other measures of wealth Aim to include many categories like health, education, food, and housing. But Normally, only selected items appear in each of these categories. This approach may lead to a mismatch between the reported inflation rate versus the actual rate of inflation faced by the contracting parties.
You noted: Estimates of food inflation will include chicken, eggs, and rice but probably not go up much, which would indicate the directions of, for example, flour, cookies, or vegetables. In fact, the model here proposed might not mirror the actual price pressures of consumers buying a long list of food products. So, in this regard, though these estimates are an indicator of the impact of the recession on personal budgets, it may not well capture the effects of it.
Multivariate approach to inflation measurement. Other factors considered under each category It can capture the real stimulus of inflation. But it poses difficult problems in data collection and analysis. Therefore, consumers and policymakers must be highly aware of these limitations. other information and personal experiences are brought into the consideration when measuring the true setback of the recession.
