📈 Economics

What are the benefits and drawbacks of measuring inflation using index numbers such as CPI/RPI?

1 answers
Answered Jan 18Economics
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Eva SendrinoFormer Economist, currently in the world of blockchain and cryptocurrency!11 students helped

It's issue usually hinges on accuracy. Here's a few reasons, specifically around CPI: Few households are average – the published figure for inflation is rarely the actual rate of inflation experienced by different people 1. The CPI is not fully representative - it will be inaccurate for the ‘non-typical’ household, e.g. 14% of the CPI index is devoted to motoring costs - inapplicable for non-car owners. 2. Spending patterns: e.g. Single people have different spending patterns from households that have one or more children 3. Changing quality of goods and services: Although the price of a good or service may rise, this may also be accompanied by improvements in quality / performance of the product 4. New products: The CPI is slow to respond to new products and services – the CPI basket is changed each year but only a few items fall out / come in