Question

1. What is the CPI? What does the percentage change in the CPI measure? What does the “core CPI” measure?
2. Why might the consumer price index overstate changes in the cost of living?
3. Why have economists defined and used price indexes other than the CPI?
4. What does indexing mean?
5. What is hyper-inflation, and what can cause it?

Answer 1

1) A Consumer Price Index measures changes in the price level of market basket of consumer goods and services purchased by households. The percentage change in the CPI measure means change in the prices compared to which the change is measured. Core CPI is the consumer price index (CPI) excluding energy and food prices.

2) if the CPI is more then the cost of living will be costlier.

3) Wholesale price index (WPI) and industrial production index (IPI) are indexes other than CPI. WPI calculates change in prices at whole sale level, IPI calculates changes in prices at production level and CPI calculates changes in prices at retail level.

4) In this context Indexing means giving a number, which measure the average change in the prices of all goods and services.

5) In economics, hyperinflation is very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase.

Hyperinflation starts when a country's government begins printing money to pay for its spending.