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My Economy Guide will explain in detail the inflation issue , which is often used but its fundamentals are not well known . So wherever you encounter, no question marks will arise in your mind about inflation. In our previous article, we explained the Exchange Rates in detail. Read this article “ What is inflation? Men.
Inflation is a decrease in purchasing power as a result of the depreciation of money or the price increase in products. Inflation is a very dangerous word for central banks. This concept affects all players in the economy. From individuals to gigantic private companies, all segments are affected by the loss of inflation. Failure to take necessary measures against inflation can lead to very devastating consequences.
MEASUREMENT OF INFLATION
Inflation is the general increase in prices of products. This definition shows us the proximity of inflation to prices. In this case, in order to measure inflation, it is necessary to measure the price increases. Various ways have been developed to measure inflation and price.
WHAT IS CPI?
The CPI stands for Consumer Price Index. This index is measured by the market basket method created by the statistical institutions of the countries. Many items from food, beverages, clothing, energy, and transportation are added to this basket. The total cost of this basket is calculated individually and includes the average price. This is done every year and thus changes in prices and inflation are calculated.
WHAT IS PPI?
PPI stands for Producer Price Index. The calculation of PPI is similar to the CPI, but the difference is that the producer and not the consumer participate in these calculations. Production costs of domestic products and services are calculated and PPI value is calculated. This calculation also includes the products and goods that manufacturers sell to other manufacturers. PPI is the leading indicator of CPI. Increases in production costs of domestic products and services are firstly reflected to producers and then these effects are reflected to consumers.
WHAT IS THE PERSONAL CONSUMPTION EXPENDITURE (PCE) DEFLATOR?
We mentioned that there is a certain market basket in CPI. That is, it includes the products limited by the measurement made in CPI. However, unlike CPI, the PCE deflator handles all expenditures of personal and non-profit organizations. Thus, a more comprehensive inflation measurement can be made. At the same time, this method of measurement leads to much more realistic results with its analyzes that are compatible with consumer behavior. It also takes into account the consumer’s orientation to cheap goods and the orientation to different products. These cases are neglected in the CPI and are always examined on the same products.