Economics
Price Indices
Price indices are statistical measures used to track changes in the prices of goods and services over time. They provide a way to compare price levels at different points in time and are often used to calculate inflation rates. Common price indices include the Consumer Price Index (CPI) and the Producer Price Index (PPI), which are important tools for monitoring economic trends.
Written by Perlego with AI-assistance
Related key terms
1 of 5
7 Key excerpts on "Price Indices"
eBook - PDFInflation
History and Measurement
- Robert O'Neill, Jeff Ralph, Paul A. Smith(Authors)
- 2017(Publication Date)
- Palgrave Macmillan(Publisher)
Having seen how some of the early Price Indices were constructed in response to a specific need, in this chapter we discuss what a price index is and how it can be put together, using a relatively simple data set to highlight many of the issues. In order to help clarify the issues we are talking about in determining an appropriate measurement of price change, we first attempt to clarify the language that we will use to talk about measuring a change in the price level. Then we consider the potential inputs to such a process and discuss how such inputs might be used to produce meaningful estimates of the change in the price level, some of the methods for which we have already met in Chap. 3. 4.1 Defining a Price Index, Inflation and Index Numbers In the course of this book and the practice of measuring changes in the general price level, we use a precise terminology. Before we define the mechanisms for producing numerical estimates of inflation, it is worth 4 What Is a Price Index? © The Author(s) 2017 R. O’Neill et al., Inflation, DOI 10.1007/978-3-319-64125-6_4 69 70 R. O’Neill et al. clarifying the way in which we talk about this process so that we start from a common platform of understanding. We will often refer to Index Numbers as the subject, hence the capi- talisation of the term. This covers the entire area of study of the design, properties, applications and potential uses of statistical tools which are designed to produce a single number to summarise the movement in one variable, constructed from many observations of other variables, between two or more different states of the world. These states could be spatially or temporally defined, as most Price Indices are. In this book we have focused explicitly on the use of Index Numbers in the pursuit of measuring changes in the general price level in the UK between dif- ferent time periods, with each time period representing a distinct state of the world.
eBook - PDF- OECD(Author)
- 2014(Publication Date)
- OECD(Publisher)
PRICES PRICES AND INTEREST RATES INFLATION (CPI) PRODUCER Price Indices LONG-TERM INTEREST RATES PURCHASING POWER PARITIES AND EXCHANGE RATES RATES OF CONVERSION REAL EFFECTIVE EXCHANGE RATES OECD FACTBOOK 2014 © OECD 2014 96 PRICES • PRICES AND INTEREST RATES Prices and interest rates INFLATION (CPI) Consumer Price Indices have a long history in official statistics. They measure the erosion of living standards through price inflation and are probably one of the best known economic statistics used by the media and general public. Definition Consumer Price Indices (CPI) measure the change in the prices of a basket of goods and services that are typically purchased by specific groups of households. The consumer Price Indices shown in this indicator cover virtually all households except for “institutional” households – people in prisons and military barracks, for example – and, in some countries, households in the highest income group. The CPI for all items excluding food and energy provides a measure of underlying inflation, which is less affected by short-term fluctuations. The index for food covers food and non-alcoholic beverages but excludes purchases in restaurants. The index for energy covers all forms of energy, including fuels for motor vehicles, heating and other household uses. Comparability There are a number of differences in the ways that these indices are calculated. The most important ones concern the treatment of dwelling costs, the adjustments made for changes in the quality of goods and services, the frequency with which the basket weights are updated, and the index formulae used. In particular, country methodologies for the treatment of owner-occupied housing vary significantly.
eBook - PDF- Keith S. Rosenn(Author)
- 2015(Publication Date)
- University of Pennsylvania Press(Publisher)
The Consumer Price Index Consumer price indexes attempt to measure changes over time in the prices of equivalent goods and services that are consumed during the 21 2 2 L A W A N D I N F L A T I O N normal course of living. In most countries the consumer price index is the most widely used estimation of the inflation rate. The index numbers typically reflect average annual price changes, from which are calculated the figure usually bandied about, the average annual percentage rate of change. Perhaps more relevant, however, is the year-end rate of change, the percentage change from December to December of each year, or the percentage change in the index over the most recent twelve-month period. If the inflation rate is rising, the year-end and most recent twelve-month percentages will be higher than the average annual rate. On the other hand, if the inflation rate is declining, the average annual rate will be higher. What does it mean to say that the consumer price index for 1975 rose 11 percent in the United States, 15.9 percent in Great Britain, or 585.9 percent in Chile? What lies behind these figures? How are index numbers derived, and what do they purport to measure? Constructing a Consumer Price Index A consumer price index is designed to measure the rate of change in prices paid by the consumer for certain goods and services. But constructing even a simple price index is no easy task. Consider the case of a primitive economy with only five commodities—bananas, coconuts, fish, grass skirts, and rum. Assume that in December of 1979 and 1980 the following price observations were recorded: Item 1979 Price 1980 Price bananas 2 4 coconuts 1 1 fish 3 5 grass skirts 8 15 rum _5 .12 Totals 19 37 With this price data, one can construct a crude price index for this economy.
eBook - PDF- OECD(Author)
- 2016(Publication Date)
- OECD(Publisher)
PRICES PRICES AND INTEREST RATES INFLATION (CPI) PRODUCER Price Indices LONG-TERM INTEREST RATES PURCHASING POWER PARITIES AND EXCHANGE RATES RATES OF CONVERSION REAL EFFECTIVE EXCHANGE RATES OECD FACTBOOK 2015-2016 © OECD 2016 86 PRICES • PRICES AND INTEREST RATES Prices andinterest rates INFLATION (CPI) Consumer Price Indices have a long history in official statistics. They provide a measure of the erosion of living standards through price inflation and are probably one of the best known economic statistics used by the media and general public. Definition Consumer Price Indices (CPI) measure the change in the prices of a basket of goods and services that are typically purchased by specific groups of households. Consumer Price Indices cover virtually all households except for “institutional” households – people in prisons and military barracks, for example – and, in some countries, households in the highest income group. The CPI for all items excluding food and energy provides a measure of underlying inflation, which is less affected by short-term fluctuations. The index for food covers food and non-alcoholic beverages but excludes purchases in restaurants. The index for energy covers all forms of energy, including fuels for motor vehicles, heating and other household uses. Comparability There are a number of differences in the ways that these indices are calculated. The most important ones concern the treatment of dwelling costs, the adjustments made for changes in the quality of goods and services, the frequency with which the basket weights are updated, and the index formulae used. In particular, country methodologies for the treatment of owner-occupied housing vary significantly. The European Harmonised Indices of Consumer Prices (HICPs) exclude owner-occupied housing as do national CPIs for Belgium, Chile, Estonia, France, Greece, Italy, Luxembourg, Poland, Portugal, Slovenia, Spain, Turkey, the United Kingdom and most of the countries outside the OECD area.
- (Author)
- 2009(Publication Date)
- Cuvillier Verlag(Publisher)
35 3. PREVIOUS STUDIES AND THEORETICAL REVIEW 3.1 Oil Prices Increase, Inflation, and Poverty In general, inflation 37 is defined as an increase in a certain set of prices, e.g. for goods and services. It can be seen as a devaluing of the worth of money (Bannock, Baxter, and Davis, 1999). Inflation is usually measured by using three main price indexes consisting of the gross domestic product deflator (GDP deflator), the producer price index (PPI) and the consumer price index (CPI). The GDP deflator is the ratio of nominal GDP in a given year to real GDP 38 of that year. It highlights that the calculation involves all the goods and services produced in the economy. Therefore, it is a widely based price index that is frequently used to measure inflation as change in prices that has occurred between the base year and the current year. In addition, the PPI is designed to measure prices at an early stage of the distribution system in which it is a measure of the cost of a given basket of goods including raw materials and semi finished goods. So, it covers the prices at the first level of essential commercial transaction that can be as one of the business cycle indicators such as the index of “sensitive materials”. These are closely watched by policymakers. Last but not least, the CPI measures the cost of buying a fixed basket of goods and services representative of the purchases of consumers, usually in urban areas, at the retail level and the cost of a given basket of goods which is the same from year to year taking into account not only goods being produced domestically for consumption but also imported ones, Dornbusch, et al (2004). In this regard, the CPI can be computed by using two methods in general. First, unweighted price indexes only compare prices between two periods such as unweighted 37) There is a distinction between inflation and inflation rate.
eBook - PDF- Brian Kettell(Author)
- 2001(Publication Date)
- Butterworth-Heinemann(Publisher)
In the past few years, more attention has focused on the fixed weight deflator than on the implicit price deflator. An acceleration in the deflator is unfavourable news to all markets. Stock prices will decline, bond prices will fall (yields will rise), and the value of the dollar will also decrease. A moderation in the inflation measure will lead to the opposite effect. Stock prices, bond prices, and the foreign exchange value of the dollar will increase. Producer price index (PPI) Definition The PPI measures prices that manufacturers and farmers charge to the shops. The US producer Price Indices (PPIs) are calculated in three different ways: type of commodity produced; net output of particular industries; and stage of the production cycle. Of these variations the latter is by far the most relevant for financial markets. Under the ‘stage of processing’ methodology, there are three indices: crude materials for further processing, covering things like oil and livestock that cannot be sold to consumers before being used in manufacturing; intermediate materials, supplies and components, including items that have been manufactured but require work before they are saleable; finished goods, which can be used by consumers. By separating the stages of production in this way it is possible to gauge inflation as it works its way through the production process. A fourth index combines the three subdivisions into the ‘all commodities index’. Financial market attention is focused on the percentage change in the monthly finished goods PPI. However, because food prices tend to be seasonal, and energy prices are frequently volatile, analysts prefer to watch the ‘core’ rate of producer price inflation, which strips out food and energy prices. 108 Economics for Financial Markets Who publishes them and when The PPIs are published in a Department of Labour press release towards the middle of the month following that to which they refer.
eBook - PDF- Timothy F. Bresnahan, Robert J. Gordon, Timothy F. Bresnahan, Robert J. Gordon(Authors)
- 2008(Publication Date)
- University of Chicago Press(Publisher)
Trajtenberg, M. 1990. Product innovations, Price Indices and the (mis)measurement of economic performance. NBER Working Paper no. 3261. Cambridge, Mass.: Na- tional Bureau of Economic Research. Triplett, J. E. 1983. Escalation measures: What is the answer? What is the question? In Price level measurement, ed. W. E. Diewert and C. Montmarquette, 457-82. Ottawa: Statistics Canada. . 1993. Comment. In Price measurements and their uses, ed. M. F. Foss, M. E. Manser, and A. H. Young, 197-206. NBER Studies in Income and Wealth, vol. 57. Chicago: University of Chicago Press. Turvey, R. 1989. Consumer Price Indices: An ILO manual. Geneva: International La- bour Office. Walsh, C. M. 1901. The measurement of general exchange value. New York: Mac- millan. nal of the American Statistical Association 28:26-32. 5 :329-35. . 1921. The problem of estimation. London: P. S. King and Son. Woolford, K. 1994. A pragmatic approach to the selection of appropriate index formula. Paper presented at the International Conference on Price Indices, 31 October-2 No- vember, at Statistics Canada, Ottawa, Ontario. Wynne, M. A,, and F. D. Sigalla. 1994. The Consumer Price Index. Economic Review Federal Reserve Bank of Dallas, second quarter, 1-22. 11 New Goods from the Perspective of Price Index Making in Canada and Japan Andrew Baldwin, Pierre Despris, Alice Nakamura, and Masao Nakamura 11.1 Introduction This paper takes a fresh look at the treatment of new goods in official index number making. It is a paper about a project that changed directions as the research progressed. We set out to document the treatment of new goods in the price statistics of Canada and Japan. We saw this as an incremental effort, building on common knowledge concerning the construction of national price indexes. We also had a preconceived notion of what new goods are: goods that have come into being recently because of technological advances.
Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
