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Inflation data

Looking at actual sequential and year-over-year inflation data. Created by Sal Khan.

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  • blobby green style avatar for user Isabela Federick
    What is the difference between the Consumer Price Index and the Retail Price Index?
    (19 votes)
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  • leaf blue style avatar for user Diogo
    Why is it labeled "UN-adjusted", how would an "adjusted" calculation be made?
    (8 votes)
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    • leaf green style avatar for user Ryan
      Things are seasonally adjusted in order to remove any kind of seasonal component in the data.

      Think about how people consume more before Christmas. Employment also increases before Christmas because a lot of temporary retail workers are hired. Also, many food and agricultural items have seasonal tendencies in their pricing because when they are out of season they are scarcer and more pricey.

      If you are studying any of those above items, you need to adjust for these tendencies. Unfortunately I can't give you a general method of doing that because each type of item will have a different statistical model.
      (17 votes)
  • male robot hal style avatar for user Omer Schechter
    So if I won't eat no food and use no energy I'm good?;)
    Seriously though, why do we factor out food and energy? I mean, if they go up - it still means we have to pay more each year for the same products.
    (3 votes)
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    • leaf green style avatar for user Ryan
      This is a source of contention for a lot of people. Keep in mind food and energy prices are only kept out of core inflation data. There are plenty of other calculations of inflation that take food and energy into consideration. The reason they are kept out of core inflation is to eliminate volatile seasonal factors. If a drought causes food prices to temporarily spike, or a hurricane causes fuel prices to spike, these events aren't seen as inflation. They are seen as temporary seasonal factors that will correct themselves after the event is over.
      (11 votes)
  • blobby green style avatar for user William Horne
    how do you calculate inflation rate as measured by the consumer price index
    (3 votes)
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    • male robot hal style avatar for user Andrew M
      The CPI has a base in which it is 100. To find the inflation rate for any year, you simply divide the CPI from the end of the year by the CPI at the end of the previous year, and subtract 1 to get the percentage rate. So if the CPI for some year is 131, and the next year it is 135, then the inflation rate was 135/131-1.

      If you want to do it over multiple years, then you need to recognize that inflation compounds. So if you want to find annualized inflation over a 5 yr period, then you would take CPI in year 5 divided by CPI in year 0, and then take the 5th root of that to get the annualized rate.
      (2 votes)
  • marcimus pink style avatar for user Agnieszka
    So many limitations of the measurement of inflation exist, is it possible that they don't reflect the actual situation of the economy at all?
    (2 votes)
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    • blobby green style avatar for user Oskar Ege
      There are plenty of issues with the way inflation is measured but as long as you stick to the same formula you will get relevant results. However, in the long run sticking to the same formula will end up making the results irrelevant thanks to changes in how the economy works is in the real world so you always have to re-visit the models and update them. So to answer your question; They do reflect the real economy and has proven to do so well. However, they need to be revised now and again to remain relevant.
      (6 votes)
  • blobby green style avatar for user ankitpatel9958
    consumer basket of poor, middle class and rich class person differ a lot so, how can we calculate the consumption basket of average earning person
    (2 votes)
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    • leaf orange style avatar for user David Kassian
      The market basket only takes into account the prices of certain goods. For example, say the government uses a Pickup Truck in the market basket. It doesn't matter if you are rich or poor, you will still pay about the same price nationwide for that same truck, if you are buying it brand new from the dealerships. If you are saying that poor people don't buy new trucks, then you're right. However, market baskets are not meant to measure costs of living. Just inflation.
      (4 votes)
  • leaf blue style avatar for user mohd.jassim61
    how can we control inflation ?
    (2 votes)
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  • blobby green style avatar for user Anjaney Singh
    Does the strength of the dollar in foreign money markets affect the inflation rate?
    (2 votes)
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    • blobby green style avatar for user hblaskowski
      I think the reverse is more accurate: inflation affects the strength of the dollar. There are many feedback loops, though, so it is possible that we can "export inflation" via exchange rates -- basically, pass the cost on to others.
      (1 vote)
  • blobby green style avatar for user Neil
    The montly changes in the CPI-U are seasonally adjusted, why isn't the 12 month percent change seasonally adjusted aswell? Or can you not have a seasonally adjusted 12 month figure?
    (1 vote)
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    • leaf red style avatar for user Ramkumar Viswanathan
      I would agree with Andrew but there is a potential for one caveat.

      If the seasonal adjustments is beyond 12 months. i.e For instance, a specific event in the country happens once in 4 years and hence the inflation comparison of 12 month might not be a good indicator all the time. But this situation does not arise often.
      (2 votes)
  • blobby green style avatar for user ankitpatel9958
    what is the ideal rate of inflation for economy like india G.R 7%,AND WHY
    (1 vote)
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Video transcript

In the last video, we talked a little bit about what inflation is, and the Consumer Price Index. And so I thought I would actually show you data and maybe point out a few interesting things right over here. So this right over here is the monthly press release, or it's the table from the monthly press release, issued by the Bureau of Labor Statistics. And this is Table A, which is really a summary of all the important things. It's the percent changes in CPI for all urban consumers, the CPI-U. And they do it for non or urban consumers and all the rest. But the CPI that is quoted is the one for urban consumers, the US City Average. And what I always find is that the details are much more interesting than what you hear just on the news when people say, oh, the CPI changed by 0.5%. And one thing I do want to point-- and this is true of the CPI, this is true of all government statistics; in fact, this is true of any report that any company gives you-- it's very important to keep in mind whether they're giving a sequential change or whether they're giving a year-over-year change. So for example, there might be a press release like this one, and the text of it, or maybe the headline number when you look at your local newspaper or your news report, will say, look in June 2011 inflation on all items, on the entire basket of goods, went down by 0.2%. And you might say, oh wow, look, there's no inflation. In fact, prices are going down. This would be minor deflation. But it's important to realize that this is only the seasonally adjusted prices from May to June. Now, when I talk about seasonally adjusted-- and traditionally, maybe people use a different amount of energy, a different amount of gasoline from May to June. And they try to factor that in when they compare the basket of good, the price of the basket of good, from May to June. So that's what they talk about seasonally adjusting. But if you look over here, the prices went down for May to June according to adjusting it for the season. But they year-over-year changes are still up. If you compare June 2011 to June 2010, it is still up by 3.6%. And in general, the monthly things are going to be a little bit more volatile. Obviously, you have the seasonal adjustments. You have other short-term factors that might change it. But the year-over-year one is a stronger signal for what is actually happening for inflation. Although someone might want to pay attention to the monthly one, because that's obviously giving you the most up to date of what's happening now. And what you'll often see is, they'll give an inflation number for everything, and then they'll subtract out food and energy. So this is all items less food and energy. And that's because food and energy, they represent a good bit of the basket, but they're very, very volatile. You can see it right here in this report, year-over-year energy has gone up double digits, 20% for energy generally. If you look at fuel oil, 35.6%, at least on this report. It's been coming down more recently. But year-over-year it's been up a huge amount. And so that's actually the main driving factor for this 3.6%. If you take food and energy out of the equation, if you compare the basket of goods minus that, inflation was only up 1.6%. It's interesting. Even within that, you can look at which parts of the economy, or which products and services, are getting a lot more expensive and which ones are getting cheaper. It's actually interesting that used cars and trucks are up 5.1%. That seems like a pretty strong price increase for used things.