Inflation Indicators

Consumer price Index

The CPI is a measure of the change in the prices of consumer goods and services in a basket of 200 different categories. Comparing the CPI with export levels of the country will show if they are profitable with their products and services. In this calculation you should be wary that prices of exports fluctuate with currency prices.

Producer price Index

The PPI looks at three areas of production: industry-based, commodity-based, and stage-of-processing-based companies and is a measure of the average price level for a fixed basket of capital, rent and materials needed for producers to manufacture consumer goods. Inflation at the producer level is passed on to the consumer who will have to now buy more expensive goods and service. Hence PPI can be used as a leading indicator to CPI. Inflation is a measure of how much prices in an economy are rising. While inflation is a necessary evil associated with economic growth, central banks monitor and take measures to control it should it reach alarming levels.

Watch-out for Volatile items

Inflation is affected more by some items than others. Oil and energy for example is a common component in most commodities and service. An increase in energy prices can hence cascade to multiple secondary areas creating a compounded inflationary impact.

Inflation creating more money on paper

In a growing economy businesses make more money and this is passed to employees as higher wages, who in turn spend more; all resulting in economic expansion. With higher demand for goods and service, rather than increase production businesses can increase prices to higher and higher levels.

This cycle takes away from real growth. Net result: There is more money on paper. Retirees and low income groups will as a result face the brunt of it.

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