Measuring inflation

Inflation: a sustained rise in price level

How inflation is measured:

• select a base year (relatively standard year in which nothing unusual happened)
• decide what items should be included in the price index - shopping basket
• weights are attached to the goods, reflecting the proportion spent on different items

Consumer prices index: a measure of changes in the price of a representative basket of consumer goods and services.

Retail price index: a measure of inflation that is used for adjusting pensions and other benefits to take into account changes in…