News and information useful to Cleveland-Marshall College of Law students, faculty and staff.

Archive for August 2nd, 2011

What is inflation and how does the Federal Reserve measure it?

For all of us non-economists who define inflation as:   “the reason why what I paid for something yesterday, will not quite cover the same thing today” a learned definition from the Federal Reserve

“What is inflation and how does the Federal Reserve measure it? Inflation occurs when the prices of goods and services increase over time. Inflation cannot be measured by an increase in the cost of one product or service, or even several products or services. Rather, inflation is a general increase in the overall price level of the goods and services in the economy. Federal Reserve policymakers evaluate changes in inflation by monitoring several different price indexes. A price index measures changes in the price of a group of goods and services. The Fed considers several price indexes because different indexes track different products and services, and because indexes are calculated differently. Therefore, various indexes can send diverse signals about inflation.”