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I see.

Does the resulting inflation numbers vary greatly between approaches or are they somewhat the same? When Central banks are fighting inflation which index do they use? Different ones?

Ron Paul is then (one can assume) writing about the difference between the Fed base inflation rate and something else (that includes food and gasoline ( perhaps consumer price index))?

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by A swedish kind of death on Wed Oct 10th, 2007 at 03:31:00 PM EST
[ Parent ]
Have you checked the Wikipedia article on Price Indices?
Some notable price indexes include:
  • Consumer price index
  • Producer price index
  • Personal consumption expenditures price index
And to that one must add at least the GDP Deflator.

So, there are at least four indices one can call "inflation", and for each of them one can ank the methodological question of how it is calculated.

We have met the enemy, and it is us — Pogo

by Migeru (migeru at eurotrib dot com) on Wed Oct 10th, 2007 at 06:11:20 PM EST
[ Parent ]
... are different ... that is the point of doing them, to view the impact of price changes on the typical consumer, or a typical low-income consumer, or a typical producer (or heavy industry producer, or light industry producer), etc.

For the GDP deflators, I believe that the differences between the overall inflation rate and the "core" rate excluding food and fuel are more important than the difference between using a single base year and using a chain index, but that is an off the cuff reaction ... I haven't checked that out.

Anytime the inflation rate is reported, it is a lie ... but the lie is in "the". There is no such thing as "the" inflation rate ...

... the only precise rate of price inflation is the price inflation of a particular product over time, which means that there are as many exact inflation rates as there are products, with a new series coming into existence every time a new product is introduced or a substantial change is made, and an old series extinguished every time an existing product is withdrawn from production or substantially changed.

SO, for example, to compare gas prices in the US today with prices at the peak of the second OPEC oil price shock, to get at any kind of detail at all, I should use:

  • The overall CPI to look at it in terms of a typical consumer
  • The low-income CPI to look at it in terms of the most vulnerable consumers
  • The PPI to look at it in terms of impacts on producers (and likely employment)

However, if I am making a sweeping statement, I will likely reach for the GDP deflator, since it includes all newly produced goods and services for all final customers ... households, government, business ... and net impact on trade.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Oct 10th, 2007 at 06:41:40 PM EST
[ Parent ]

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