Regardless of our profession, or interest in economics or trade, we are all familiar with the concept of inflation. We experience its consequences every time we go to the supermarket or gas station. Rising prices reduce our purchasing power, and if wages remain unchanged, inflation will make us poorer and lower our standard of living. The importance of inflation as a measure of socio-economic stability and an indicator of consumer welfare is obvious. High inflation makes life increasingly difficult for those on fixed incomes, complicates the task of corporate planning, and tarnishes the reputations of policymakers and economists as they are responsible for solving problems in the economy.

While it is quite easy to sense price increases for a given product (especially if it is widely consumed and used by the public), it is difficult to know the overall levels of price changes across all product categories without a systematic approach. The price of bread may rise by 20 percent in a year, but this would hardly be a cause for concern if the prices of other food items fell or remained constant. A tool used to identify price changes across all categories of consumer goods is the Consumer Price Index (CPI), which is used by forex traders, policy makers and analysts to analyze price movements, market trends and determine economic policy.

It should be noted that consumer price index(CPI) only includes products that are used by the consumer for his personal needs. It differs from PPI because it does not take into account changes in the prices of raw materials and intermediate products that are used by manufacturing plants and firms. It also differs from the GDP deflator because the latter takes into account price changes for all goods produced domestically, not just consumer goods, and also does not include changes in the prices of imports. Purpose of compilation CPI is to determine changes in prices for goods that are directly related to the consumer, as well as their components that are used in their creation, which are directly related to the consumer.

The methodology for calculating the consumer price index differs from country to country. Each national statistical institute uses its own method when calculating data, and, for example, the European Union uses the harmonized CPI to bring the different approaches to its calculation in its member countries into line with each other. Calculating CPI in Zimbabwe, for example, is very different from the calculation methodology used in the United States because the Zimbabwean consumer basket does not include most of the goods consumed by American citizens.

If the consumer price index rises, the economy goes through an inflationary phase. Prices are rising, and consumers find it worthwhile to purchase needed items as soon as possible to avoid having to buy them at a higher price in the future. An economic situation when the consumer price index falls below zero is called deflation. In this case, prices fall and consumers have less incentive to speed up their next trip to the store due to the expectation that prices will be cheaper next time. Deflation is a nightmare for central bankers because conventional market instruments are very ineffective in combating it. There is no upper limit to how high the central bank's rate can rise to keep the rate of inflation from rising, but rate cuts to combat deflation may not go below zero. Also, central banks react quickly to any threat of deflation by lowering rates in the hope that prices will begin to rise before the expectation of deflation replaces the expectation of continued price increases in consumers' minds over the long term.

The Importance of the Consumer Price Index for Forex Traders

The main benefit of the CPI data release for all traders, including forex traders, is its role as a major driver of interest rates for central banks. Modern central banks increasingly target inflation as the primary goal of their monetary policy implementation, and due to the importance of the central bank interest rate to economic trends, the consumer price index serves as an early warning indicator of possible changes in central bank policy.

The immediate reaction of the forex market to the release of CPI data can range from minor to chaotic, depending on how unexpected the value was. Even its very high value will not be able to move the market much if it is consistent with the existing central bank rate, and will be expected by the market as such. But even a small deviation from the expected trend can cause forex traders to reconsider their trading strategies, leading to fluctuations and turmoil in the market.

Besides its role as an indicator of future central bank policy, the release of CPI data can be useful in forecasting the course of national policy due to the tendency of voters to punish governments that fail to help them during times of high inflation. High gasoline or food prices often coexist with political chaos: the experience of many Latin American countries, Indonesia, Turkey, Russia and some other former Soviet republics during the 1990s, as well as the history of political chaos in the United States during the high inflation era, before the election of President Reagan, clearly showed how important the CPI can be for political analysis. Since legislation and policy decisions can be some of the most important factors in shaping economic trends, the role of CPI in this type of analysis is very clear.

Currency trends over the long term are highly dependent on central bank interest rate differentials. Also, it should be expected that among two countries with a similar economic structure, the currency of the country with higher inflation rates will be valued higher by the market. So even a simple comparison of the underlying CPI levels across countries can give us some clues as to which currencies are likely to appreciate in value. For example, during the period 2002-2007, Australian inflation was consistently higher than the US inflation rate. During the same period, inflation in the US was higher than the Japanese CPI. The result is reflected in exchange rates: the Australian dollar strengthened against the US dollar, while the dollar itself appreciated against the yen, during the time period under review.

It goes without saying that if we want to create a complete picture of price dynamics, we must consider the CPI in conjunction with many other indicators such as GDP, trade balance and global conditions. A high level of the consumer price index is an indicator of increasing demand (and a strengthening currency) only if the central bank acts responsibly and is able to control it. Otherwise, rising inflation will lead to investor disappointment, capital flight, social unrest and political instability. It should also be noted that developing economies are better able to cope with high CPI levels than developed economies. As a result, the acceptable level of inflation in countries such as Indonesia, Turkey, Brazil or India is usually higher than in the UK or the European Union.

Methodology for calculating the consumer price index in the USA

The data used to calculate the CPI is collected in the United States by the Bureau of Labor Statistics (BLS) in 87 cities with more than 50,000 residential buildings and approximately 23,000 retail locations.

In addition to actual prices at various retail outlets such as gas stations, supermarkets, hospitals and many others, the Consumer Price Index includes various taxes associated with the purchase and use of consumer goods. A routine survey of each household and retail outlets is conducted once every two months to calculate the CPI value. During the interim month, the survey is carried out only in key areas and the report provides only general figures without a detailed breakdown. Fuel prices and some other items, on the other hand, are reviewed on a general basis every month.

The Consumer Price Index is calculated by averaging price changes across different items and according to their share and importance in consumer spending. Thus, although both the price of jewelry and the price of bread are included in the CPI calculation, they are given different weights, and a change in the price of bread has a greater impact on the change in the value of the price index.

We don't have to worry about every single component of the CPI calculation methodology, but there is one important point that needs to be taken into account when analyzing this piece of data. Although the Consumer Price Index includes a component called housing costs, it measures only the cost of rent and a measure called owner's equivalent rent, along with various housing-related costs such as furnishings, energy and similar components. Also, the CPI does not include asset prices such as stocks or home prices (although the owner's equivalent rent component attempts to capture changes in property prices, it is extremely inefficient). There are two main results of all this. First, sharp increases in home prices can occur without attracting much attention from the central bank because they are not included in the consumer price index and are not considered an important part of the inflation component discussed at every meeting of Federal Reserve officials. Second, bubbles such as the mortgage bubble of this decade and the stock market euphoria of the late '90s cannot be predicted or prevented by a central bank. Forex traders should keep in mind that high house prices can mask much of the structural inflation, taking a significant portion of the money out of the market that would otherwise create consumer inflation included in the CPI release.

Components of the Consumer Price Index

The CPI, calculated by the Bureau of Labor Records (BLS), consists of the following items.

Food and drink. As the name suggests, this item includes ingredients such as water, bread and baked goods.

Housing maintenance costs. This item is divided into three components: living expenses, energy expenses and household furnishing expenses (including other operating expenses). Living expenses measure rent and equivalent rent for the owner; energy expenses measure the cost of heating and electricity; while the furnishings component estimates cost items associated with decoration and similar expenses. This component of the CPI also evaluates changes in the cost of hotel stays.

Cloth. This index measures changes in clothing prices.

Transportation. The transport price index consists of a new vehicle index, a used car and truck index, public transport and motor fuel indices.

Medical service. The Health Care Price Index measures changes in doctor fees, drug costs, and the cost of treatment and hospital stays, among other similar items.

Rest. The holiday price index evaluates price changes in components such as movie tickets, etc.

Education and communications. This index includes price indices for items such as mobile phones, computers, books and other similar goods and services.

Other goods and services. This component evaluates price changes in spending categories not included in previous groups, such as the cost of cigarettes.

In addition to this general breakdown of CPI into individual components, there are several specific indices created to assess the dominant trend in various consumption categories. The most important among them is the core-CPI index, which is calculated by excluding food and energy prices from the regular CPI. Food prices are highly seasonal and highly responsive to perceived changes in supply and demand, as well as fluctuations in commodity markets. Energy prices are even more susceptible to volatility in commodity prices. These two positions are to some extent independent of consumer demand, but depend on external factors that remain beyond the control of government officials and politicians. To better assess changes in consumer behavior and firms' pricing policies, economists and Forex traders sometimes use the core-CPI value. However, it is important to keep in mind that the core-CPI is a quasi-index with no real link to the firms or individuals who still have to buy gasoline and food, regardless of the reasons behind the price movement.

Revisions and original data

The CPI data release includes both the raw data and a seasonally adjusted version of the data. Raw data can be misleading regarding price trends due to its tendency to be distorted to a greater or lesser extent by seasonal factors such as changing climate conditions, production cycles, line changes at manufacturing plants, holidays and sales. As such, it is often ignored by the forex analyst community and traders. It is most valuable to consumers who want deeper information about the actual prices at which they purchase products. They are also used in collective bargaining agreements between unions and employers. Seasonally adjusted data provides a more reliable picture of underlying price trends.

Each year, the BLS revises the CPI level for the previous five years in light of newly available data and makes the results of the revision public. After five revisions, the data is considered final and is not revised further.

Inflation expectations

The Fed doesn't rely on the Consumer Price Index alone when making interest rate decisions. The Fed's decision in setting future policy also depends on an indicator called "inflation expectations." "Inflation expectations" reflect the public's expectations and feelings regarding the upcoming inflation rate. For example, if the CPI rises, then medium- and long-term and inflation expectations remain constant. As time passes, it becomes increasingly likely that the Federal Reserve will take no action to counter the trend.

The concept of “inflation expectation” is vague in nature. It takes into account various consumer surveys of future inflation, along with the so-called break-even rate on Treasury Inflation Protected Securities (TIPS) and the actual reading of the Consumer Price Index, to draw conclusions about the Federal Reserve's credibility among the public. American public.

Other releases of the Consumer Price Index

Although the BLS releases its CPI statistics monthly, regional branches of the Federal Reserve have their own versions of the CPI release. These releases are primarily statistical variations based on the raw CPI data and can be accessed on the respective pages of the Fed's various regional office websites.

conclusions

Let's summarize some of the important points discussed in this article on CPI regarding the measurement of changes in consumer prices.

The Consumer Price Index measures price changes for all consumer goods but does not include processed foods, raw materials, or similar items in its calculation. It is issued monthly by the Employment Records Bureau and revised annually. Seasonally adjusted data is widely used by economists and forex market analysts to assess price trends and predict future Federal Reserve policy.

The Consumer Price Index does not include changes in asset prices!

The CPI only assesses changes in prices for consumer goods and, as such, does not assess the impact of asset bubbles (real estate, stocks) on the consumer balance sheet, or on the economy as a whole. Asset prices have a huge impact on consumer behavior, the increase in the share of loans in the economy and its overall dynamics.

The Consumer Price Index is the main determinant of interest rate policy for the central bank!

In its various forms (the Federal Reserve's personal consumption expenditure (PCE) index, the European Central Bank's HCPI index or the Bank of England's CPI index), the consumer price index is the main determinant of interest rate policy for central banks in the modern world. Japan, the UK, Europe and to some extent the US use inflation targeting as the main objective of interest rate policy. Thus, the CPI has some predictive value for the forex and bond markets, as an increasing trend in the CPI value will eventually lead to the central bank raising interest rates. With the consumer price index trending downward, the interest rate will likely also be reduced.

When looking at utility bills and store price tags, many people ask, “If everything is getting so expensive, then why are we being told that the consumer price index has not increased much? Who calculates the consumer price index (CPI) and how?” In order to answer this question, let's try to figure out what the consumer price index is and why it is needed.

In economic theory, the consumer price index is a tool for measuring inflation, which characterizes the increase (decrease) in prices based on changes in the price of goods and services in the so-called consumer basket. The CPI indicator (in foreign literature CPI - Consumer Price Index) is used all over the world and serves to measure inflation and the standard of living of the population.

Calculation of consumer price index

The calculation formula for the consumer price index (as a percentage) is very simple. It is the sum of the products of the prices of goods (services) - C, by their share in the consumer basket. The numerator uses data from the period under study, and the denominator uses data taken as the base. Thus, the consumer price index is calculated as the increase in price (decrease in price) of basic goods and services in relation to the base period, expressed as a percentage.

CPI = (Ts1V1+Ts2V2+…+TsnVn)*100/(Ts1’ V1’+Ts2’V2’+…+Tsn’Vn’)

As you can see, to make the calculation you need to know the prices and composition of the consumer basket.

What is a consumer basket

Since different goods and services occupy different shares, a rise in price, for example, doubling the cost of electricity, will have a slight impact on the cost of the basket as a whole. So, if the payment for electricity is 1% of the total cost of products and services in the consumer basket, then an increase in its cost by 2 times (i.e. by 100%) will increase the CPI by only 1%. But if the share of electricity in the “basket” is 5%, then the increase in cost will already be 5%!

Read also: Full cost of the loan: what is it, how to calculate

Therefore, to understand how the consumer price index reflects the situation on the market, and, consequently, our purchasing power and standard of living, you need to know what the consumer basket is. In very general terms, it is the set of goods and services consumed by a person (or an average family) over the course of a month or year. The consumer price index in the Russian Federation is calculated on the basis of such a set, which is regularly reviewed and approved by the government. Why should this be done regularly? The answer is very simple - our needs are not static, but change over time.

A simple example. Thirty years ago, including cellular communication services in the basket was impossible (it simply did not exist then), but today these services are an essential item. The definition of qualitative and quantitative content is the difficulty and weak point that causes fair criticism from us. This is where the dog is buried. The basket is average, and we are all different.

In order to understand how the CPI indicator is related to the standard of living of various segments of the population, let’s consider several recent examples from the situation in Russia. The CPI in December 2016 was 105.4% compared to December 2015, and in December 2015 compared to December 2014 – 112.8%. That is, over two years the CPI amounted to 118.9%. If you now ask a wealthy person who consumes mainly imported goods, which rise in price approximately in proportion to the depreciation of the ruble, he will say that the rise in price is significantly greater. People with low and middle incomes primarily evaluate utility bills.

Aggregate price indices

To actually take into account inflation processes occurring in the economy, aggregate price indices are used, calculated on the basis of a constant consumption structure - a certain set of goods and services (called "market basket") for a given period of time.

Aggregate price index is an indicator characterizing the dynamics of price changes for a certain period in a certain territory compared to the base year, necessary for comparing the prices of a set of heterogeneous goods and services.

According to accepted practice, the ratio of the value of the given year and the base year is multiplied by 100 percent or points.

Main aggregate price indices are the consumer price index and the GDP deflator.

CPI– an index in which the market basket is represented by a certain, legally established set of goods and services, called consumer basket(a special type of market basket). The composition of the consumer basket is fixed at the level of the base year ( Q i 0), therefore traditionally this index is calculated using the formula Laspeyres.

The Laspeyres formula for calculating the CPI is:

Where P i 1 And P i 0– price i-th product in the current year and base year, respectively,

Q i 0– volume of consumption i-th product in the base year,

n– number of different product groups.

Thus, the CPI characterizes how many times consumer spending would change in the current period compared to the base period if the volume and structure of consumption remained unchanged when prices changed. Therefore, the CPI serves as an indicator of inflation, and information about it is used when deciding on the indexation of monetary incomes of the population.

Procedure for calculating the CPI

The CPI is calculated in several stages. First, individual price indices of goods (services) for the city are determined as quotients of divisions of average prices:

In turn, the average prices of the reporting and base periods R 1 And R 0 for each registered product are calculated using the simple arithmetic average formula, i.e., as the sum of registered prices at different points divided by the number of registered prices.

Where n - number of registered prices.

On the basis of individual price indices for the territories participating in the observation, aggregate price indices of individual goods, product groups and services are determined for the entire region and the Russian Federation.

As territorial weight the proportion of the population at the beginning of the current year of the surveyed territory in the total population of the Russian Federation is used. It should be noted that it would be advisable to take the share of sales of the relevant goods in the total sales volume as territorial weights, but since such data is not available at the district or city level, and in order to simplify calculations, the share of the population of each selected region can be taken as territorial weights .

Based on aggregate indices for goods and services in general (or groups of goods and services) and the share of expenses for their purchase in consumer spending of the population, we determine summary indices prices in general for groups of consumer goods and services, as well as CPI for the region, economic region, and the Russian Federation as a whole.

The Laspeyres formula is used as a formula for calculating the CPI:

Where I- price index of the i-th period compared to the base period;

p - price i th goods or services, respectively, in the basic and i-th period.

Consumer expenditures obtained as a result of household surveys are used as weights in calculating the CPI. To clarify the share of individual items in the consumer mix, information on the structure of retail turnover, expert assessments and other sources are also used.

In a stable economy, changes in the structure of consumer spending occur relatively slowly. Under these conditions, the weights used to calculate the CPI change on average once every 4-5 years. Then you can use the following calculation formula:

Where d- weights fixed at a certain level.

In this case, the prices of the current period are compared with the prices of any other period, and not just with the prices of the year in which the consumer expenditure survey was conducted.

Currently, due to the fact that in Russia, in an unstable economy, the structure of consumer spending changes significantly from year to year, the method of adjusting average annual weights is used, which makes it possible to bring the weights of the basic consumer basket as close as possible to the conditions of the current period.

The dynamics of price indices in Russia are presented in table. 3.


All products and services
foodstuffs
non-food products
paid services to the population

* Russia in numbers: Krat. stat. Sat./Goskomstat of Russia. - M., 1999. P. 354-355.

The CPI, calculated using the Laspeyres formula, shows how consumer spending would change in the current period compared to prices in the base period if the level and structure of consumption remained unchanged. However, the structure of consumer spending is changing, so it is generally accepted that the Laspeyres index overestimates inflation, and the Paasche index underestimates it.

According to R. Torway, a well-known English specialist in the field of labor statistics, there is no clear answer to the question of what the CPI should “ideally” measure*. Differences between “ideal” indices cannot be ignored, nor can differences between the index formulas used, such as the Paasche and Laspeyres indices. Therefore, there may be a difference between what the CPI measures and what is intended to be measured. In addition, problems associated with changes in product quality remain largely unresolved. World practice has developed a good guideline in determining the number of group indices, according to which their number of 200 or 300 is quite sufficient.

The most difficult thing when calculating the CPI in Russian statistical practice is the collection of primary information on prices. The main problem in recording prices continues to be that each month there is a lack of product variety or underlying trade data and difficulties in providing comparable price information.

The composite consumer price index for goods and paid services to the population measures the level of inflation. To index wages, a price index is used for a set of goods and services, excluding non-essential goods.

In table Figure 4 shows a simplified scheme for calculating the CPI. The cost of payment for municipal housing in certain areas of the region for December 1992 and January-June 1993 was taken as initial information**

Table 4

CPI calculation scheme

		Tariff, rub. P l
Districts, regions	Population share
	population, d k







Total for the region
Index to previous month
by December 1992

** Questions of Statistics 1996 No. 3 P 53-60

In the line “Total for the region” the arithmetic average of tariffs for the region, weighted by the share of the population, is calculated. For example, in January 1993, the average payment tariff for municipal housing was

Where p t - average price (tariff) for the region in the th month;

p kl- tariff kth district in i-m month, d k - population share k- ro district of the region.

From the analysis of the dynamics of average tariffs, it is clear that over the six months tariffs increased by 5,426 times, mainly their growth occurred in June, when tariffs increased by 3,153 times compared to May.

The resulting indices for the analyzed type of service can be used to construct an aggregate CPI for all product groups. But this calculation method is used to determine the price index (tariffs) for homogeneous goods (services) and is not used for product groups that include goods with different quality characteristics ( for example, certain types of clothing, shoes, fabrics) An algorithm was adopted to calculate the price index for such items for the entire region (Table 5).

Summary indices for the region (to the previous month) are calculated as arithmetic averages of individual indices, weighted by an aggregate indicator, defined as the product of the population share and the tariff level of each region (p 0 k d k ).

Table 5 Individual tariff indices for individual regions

Districts of the region, k		Indices for the previous period,
Districts of the region, k







Total for the region compared to the previous month

Composite base indices (by December 1992) are calculated using the formula:

To calculate them, we will determine the basic individual indices for the regions of the region (Table 6).

Summary chain indices are shown in the bottom row of the table. 5. Their calculation is given for April, since for January, February and March the summary indices, like the individual ones, are equal to I:

Table 6 Basic individual indices by district of the region

Districts of the region, k








Total tariff index by December 1992

We obtain the basic indices for the regions of the region based on the chain indices from the table. 5, using the relationship between them:

June/December = January/December * February/January * March/February * April/March * May/April * June/May

Summary basic indices for the region are given in the bottom line of the table. 6:

This method of calculating aggregate tariff indices makes it possible to take into account not only the share of the population consuming services at these tariffs, but also the level of basic prices (tariffs) in each region. The differentiation of tariffs by region is significant: from 0.13 to 2.25 in December and from 0.13 to 7.0 in May, therefore the chain composite indices given in table. 4 and 5, differ both in May and in June, i.e. in those months when tariffs changed in almost all areas.

The summary indices obtained in this way for goods or product groups are further aggregated at the republican level, taking into account the structure of consumer spending. In table 7 shows in a concise form the structure of consumer spending by main product groups.

Table 7 Structure of consumer spending by main product groups

(based on household budget survey data]

To calculate the index cost of living a normative approach to the formation of the consumer basket is needed: the set (list and quantity) of goods and services necessary to ensure a living wage is compared, which is estimated at the prices of the reporting and base periods.

To calculate the subsistence level, a set of 25 basic food products is determined. Along with the monthly registration of prices for the full list of goods and services, weekly registration of prices and tariffs for goods and services included in the required social set of 37 items is carried out.

The cost of a set of 25 basic food products is calculated based on the annual consumption standards required for a man of working age, and is used to compare the level of food prices in different cities. The set includes: rye and wheat bread - 68.7 kg, rice - 3.7 kg, vermicelli - 5.2 kg, sugar - 20.7 kg, vegetable oil - 6.4 kg, butter - 2.5 kg , meat - 8.4 kg, chickens - 17.5 kg, boiled sausage - 0.45 kg, boiled-smoked sausage - 0.35 kg, milk - 123.1 l, sour cream - 1.6 kg, cheese - 2 .3 kg, eggs - 151.4 pcs., potatoes - 124.2 kg, fresh cabbage - 28.1 kg, onions - 28.4 kg, apples - 19.4 kg, cottage cheese - 9.9 kg, margarine - 3.9 kg.

The choice of this list is due to the fact that the listed goods are relatively constantly available for sale throughout Russia, which allows us to reasonably analyze the dynamics of the cost of a set of products.

The cost of a set of basic food products is determined for Moscow and St. Petersburg, the capitals of the republics, regional and regional centers per month.

3. Consumer Price Index

To analyze the actual data on the development of inflation in Russia after price liberalization, it is necessary to consider one of the main indicators for assessing the level of inflation - the consumer price index.

In accordance with the Resolution of the State Committee of the Russian Federation on Statistics dated June 20, 1995 No. 79 on the approval of the “Regulations on the procedure for monitoring changes in prices and tariffs for goods and services: determining the consumer price index”, a unified methodology and tools are adopted for monitoring the level and dynamics of consumer prices , and establishes the procedure for calculating the consumer price index (CPI). According to this resolution, the definition of the CPI is as follows:

“The CPI characterizes the change over time in the general level of prices for goods and services purchased by the population for non-productive consumption. It measures the ratio of the value of an actual fixed set of goods and services in the current period to its value in the previous (base) period.”

The CPI is one of the most important indicators characterizing the level of inflation and is used for the purposes of implementing state financial policy, analyzing and forecasting price processes in the economy, regulating the real exchange rate of the national currency, revising minimum social guarantees in order to characterize changes in the total amount of consumer spending of the population in individual regions and the Russian Federation as a whole for goods and paid services in the current period compared to the previous (base) period under the influence of changes in prices for these goods and services.

The procedure and stages of calculating the CPI:

Individual price indices for goods (services) in the city are determined as a partial division of average comparable prices.

On the basis of individual price indices for the cities participating in the observation and territorial weights, aggregate price indices of individual goods, product groups and services as a whole for the region, economic region, and the Russian Federation are determined.

Based on aggregate indices for goods and services as a whole for the region, economic region, free price indices as a whole are determined for groups of food, non-food goods and services, as well as CPI for the region, economic region, and the Russian Federation as a whole.

The CPI is calculated in accordance with the Laspeyres formula:

Po Qo x PI/Po, Where:

Qo is the quantity of goods (cases of receiving services) in the consumer set of the base period;

PI (o) is the price of a unit of goods (services) in the consumer set of the reporting (base) period.

The CPI is calculated at weekly, monthly, quarterly intervals, as well as on a cumulative basis for the period from the beginning of the year.

Annual industry wholesale price indices are consistently ahead of the corresponding consumer price indices. Most likely, special impulses to increase prices come from the production sector. Let's look at this area in more detail, using Table 3. It can be seen that prices for goods produced in industry are lower than the prices of resources. In January-February, the excess of the former over the latter was 7 percentage points. Consequently, a special inflationary impulse emanates from the depths of industry, from the lowest stages of processing.

Tab.32

From an industry perspective, the fuel and energy complex especially stands out in this regard. This is cost-push inflation in the Russian economy.

The roots of cost inflation in a transition economy lie in the recent past, and its mechanism is constantly fueled by the modern type of economic development of the country and its economic policy. It is worth remembering the system of planned pricing, as well as the closedness and relative isolation of the Russian economy from the world market.

Questions of Economics, 1995, No. 3, P.5

Nominal and real GDP. Price indices

All macroeconomic indicators are expressed in market prices. When they are measured in current prices (i.e., in prices of a given period), their values have nominal value . If constant or comparable prices are used (i.e. prices of the base period), the indicators have real value (or "physical expression"). Therefore, there may be significant discrepancies between nominal and real indicators due to changes in the price level; therefore, an increase in indicators does not always indicate an increase in the physical volume of social production. Only the dynamics of the real indicator, as follows from its definition, makes it possible to assess the change in the physical volume of output over a certain period of time.

It is obvious that the value of nominal GDP (and all other macro indicators) is influenced by two processes:

a) dynamics of real production volume;

b) dynamics of the price level.

Real GDP is calculated by adjusting nominal GDP by the price index (the same applies to all other macroeconomic indicators).

Price index can be calculated as the ratio of the price of the current period to the price of the base period. It shows the relative change in the average price level for goods - goods and services of a certain population ( representative set, or "basket"):

(2.2)

Where: P– aggregate price index;

p 1 and p 0 – price for a certain good, respectively, in the current and base periods;

q*– the volume of production of a certain good in a period (current or base).

An aggregate (or summary) price index can be used to determine the dynamics of the cost of the entire set of goods and services ( general index) and for individual groups of goods and services ( group index).

Depending on the content of the set of goods used in calculating the price index, there are three types of price indices : consumer price index, production price index, deflator.

When determining consumer price index(English CPI - “consumer price index”) the “consumer basket” includes many of the most important goods consumed by a typical or average household (consumer goods). Consumer basket- this is a set of benefits necessary to meet the needs of the average family, ensuring the maintenance of a minimum standard of living.

This Laspeyres index– price index with basic weights (a set of goods fixed for the base year):

(2.2)

Based on similar wholesale production price index The dynamics of the cost of production of a group of goods or services is determined.

Index (2.2) does not take into account structural changes in the set of goods in the current period compared to the base period, which somewhat distorts the result. Thus, in the base year consumer basket, changes in the structure of consumption in the current period are not taken into account, for example, the replacement of more expensive goods with cheaper ones in the face of rising prices. The result is an overestimation of actual price increases when the consumer price index is used as a proxy.

If we fix the set of goods for the current year, we get Paasche index:

(2.3)

Unlike the Laspeyres index, the Paasche index somewhat underestimates the growth of the price level in the economy, since it also does not take into account the dynamics of the structure of weights, fixing it already in the current period. If it is used to estimate price increases, then the impact on consumers of increased prices for goods that were present in the base year set but not in the current year set will not be taken into account.

If we take the entire set of goods represented in GNP (GDP) as a representative set in index (2.3), we obtain deflator GNP (GDP), which acts as general price level in economics.

Deflator is the ratio of nominal GDP (GNP) to real GDP (GNP) in the current period.

In its economic content, it reflects not only changes in prices, but also changes in the structure of the “basket” of goods, measuring the growth not only of consumer prices, but also of all other prices.

The Fisher index partly eliminates the shortcomings of the Laspeyres and Paasche indices by averaging their values:

(2.4)

Converting nominal GDP (GNP) to real means deflation(the price index value is greater than 1, and nominal GDP decreases to real GDP) or inflation(that is, the value of the price index is less than 1, and nominal GDP increases to real GDP).

Price indices are used to assess changes in inflation rates and changes in the cost of living. However, they make it difficult to compare the results of national production of different countries, since the composition of their consumer baskets has significant differences.

When comparing the level of economic development of different countries, neither the nominal nor the real product of society can be used. As mentioned above, its value can be determined using different methods. Therefore, for a valid comparison it is necessary to calculate nominal GDP using a unified methodology and in one monetary unit per capita.

Abstract topics:

1. Balance sheet of the national economy (BEN) and the system of national accounts: comparative analysis

2. System of national accounts of the UN and EU: comparative analysis

3. Dynamics of macroeconomic indicators of Ukraine and development trends

4. Problems of assessing the national welfare of a country

5. Price scale, consumer basket, cost of living index: relationship between quantities

Control tests:

1. The system of national accounts is information:

a) on the use of the results of national production;

b) about the main cause-and-effect dependencies in the economy;

c) about the structure of the state’s economy;

d) on the production and distribution of the results of national production.

2. National account is:

a) balance sheet structure reflecting reproductive processes in the country;

b) the main institutional unit of the country; c) macroeconomic indicator;

3. Sector is:

a) economic entities registered in a given country;

b) independent entities that are legal entities;

c) a method for organizing information about economic transactions;

d) institutional units that are homogeneous in their functions.

4. The market value of all final goods produced in the country during the year by all economic entities is:

a) gross domestic product; b) net national product;

c) gross national product; d) disposable income; d) national income.

5. The market value of all final goods produced during the year by resident economic entities of a given country is:

a) net national product; b) national income; c) disposable income;

d) gross domestic product; e) gross national product.

6. The market value of all final goods produced in the country during the year, minus the cost of consumed means of production and indirect taxes, is:

a) national income; b) net domestic product;

c) net national product; d) gross domestic product.

7. Which of the following is included in the GNP:

a) revenue from the sale of spare parts;

b) purchase of used equipment;

c) acquisition of new shares; d) the cost of goods in the store.

8. Added value is:

a) gross output of the enterprise at market prices minus material costs;

b) all production costs plus profit;

c) the cost of the entire social product produced;

d) the market value of all final goods minus the cost of material costs;

e) the market value of the output of the final product in the economy.

9. Gross investment in the country is taken into account when calculating:

a) GNP by production method; b) GNP by income;

c) personal income; d) GNP by expenditure.

10. The income of the owners of all factors of production in the economy is:

a) national income; b) personal income; c) disposable income;

d) net national product; d) net domestic product.

11. Depreciation and indirect taxes are taken into account when calculating:

a) GNP by income; b) GNP by expenses; c) personal income;

d) GNP by production method; d) disposable income.

12. The excess of GDP over GNP indicates:

a) about a negative foreign trade balance;

b) whether residents of the country have foreign branches;

c) about a positive foreign trade balance;

d) about the presence of foreign property in the country.

13. Net and gross investments in the economy are related to each other by the formula:

a) gross investment - net investment = depreciation;

b) net investment - gross investment = depreciation;

c) gross investment + net investment = depreciation;

d) gross investment + depreciation = net investment;

e) gross investment - depreciation = net investment.

14. Disposable income is:

a) the sum of wages, rent, profit and interest on capital;

b) personal income + individual taxes; c) national income - personal income;

d) personal income - individual taxes.

15. Transfer payments are:

a) payments to households that are not conditional on material compensation on their part;

c) subsidies to firms to reduce the impact of indirect taxes on prices;

d) deductions for capital consumption in the economy.

16. Personal income is:

a) disposable income + individual taxes;

b) national income + transfers – indirect taxes;

c) national income + social benefits + income taxes - transfers;

d) national income + transfers – social payments – income taxes – deductions from profits.

17. The indicator “net economic welfare” is:

a) net national product;

b) the sum of all added values in the economy;

c) a general indicator of the material well-being of society;

d) a more complete description of the real well-being of society.

18. The ratio of nominal GNP to real GNP is:

a) general price index in the economy; b) consumer price index;

c) production price index; d) individual price index; d) deflator.

19. The general price index is:

a) basic value of the “market basket” / current value of the “market basket”;

b) current value of the “market basket” – the basic value of the “market basket”;

c) price level in the current period / price level in the base period;

d) current value of the “market basket” / basic value of the “market basket”.

20. If the volume of nominal GNP and the price level decreased, then:

a) real GDP has not changed;

b) real GNP increased less than prices;

c) real GNP decreased;

d) it is impossible to unambiguously determine the dynamics of real GNP.

Topic 3. Macroeconomic instability

4. Cyclicality as a form of economic development. The essence and types of cycles, causes and indicators of cyclical fluctuations

5. Employment and unemployment. Level and types of unemployment. Full employment and Okun's law

6. Inflation and its consequences. Types of inflation. Stagflation

Methodology for calculating consumer price indices.

“Index” translated from Latin is a pointer or indicator. In statistics, an index is an indicator of the relative change in a given level of the phenomenon under study compared to its other level, taken as the basis of comparison.

The index of consumer prices and tariffs for goods and paid services to the population (CPI) characterizes changes over time in the general level of prices and tariffs for goods and services purchased by the population for non-productive consumption. Measures the ratio of the cost of a fixed set of goods and services in prices of the current period to its cost in prices of the previous period.

Monitoring changes in consumer prices is entrusted to state statistics bodies. Rosstat carries out monthly calculations of the consumer price index system:

1) All goods and paid services to the population;

2) All products without alcoholic beverages;

3) Food products without alcoholic beverages;

4) Food products (including alcoholic beverages);

5) Non-food products;

6) Paid services;

7) All goods and services of optional use;

8) All goods of optional use;

9) Food products of optional use;

10) Non-food products of optional use;

11) Paid services for optional use;

12) All goods and paid services (excluding goods and services of optional use);

13) Food products (excluding non-essential goods);

14) Non-food products (excluding non-essential goods);

15) Paid services (excluding optional services);

16) All goods and paid services (excluding vegetables, potatoes and fruits);

17) Food products (without vegetables, potatoes and fruits).

In addition, the consumer price index is calculated for goods and paid services to the population that are not included in the list of goods and services used in calculating core inflation.

The consumer price index is calculated as the result of dividing the sum of the products of prices of the current year by the output of the base year by the sum of the product of the price level and the output of the base year:

(10)

The result is expressed as a percentage (multiplied by 100%).

The following properties of the consumer price index can be distinguished:

1) Based on a fixed price level for many goods and services in the consumer basket;

2) The main tool for calculating inflation in the USA;

3) A common indicator of changes in the cost of living;

4) It is a Laspeyres index, since the base year consumer basket is used when calculating the CPI.

The purpose of calculating the CPI is to identify the most stable price dynamics that are not affected by supply and demand shocks, seasonal factors, as well as the administrative influence of federal and regional authorities on pricing processes.

Because The consumer price index is calculated for goods and services from the consumer basket, let's move on to a more detailed study of it.

Consumer Price Index – we will define and calculate it!

Consumer Price Index (CPI)

— Consumer Price Index (CPI)
— Calculation of the Consumer Price Index
— The influence of consumer price indices on currency quotes
— General or consumer inflation
— The influence of the CPI index on Forex trading
— Weaknesses and strengths of the consumer price index
- Conclusion

CPI– consumer price index, reflects changes in the price level for a group of goods and services for the reporting period (month, 3 months, year). Reflects changes in the cost of living in the country, being an early indicator of consumer inflation, recording changes in the purchasing power of the national currency.

A rise in the consumer price index reflects the fact that a typical basket of goods and services has increased in price relative to the base period. Accelerating CPI growth indicates an increase in the growth rate of consumer inflation, which, in conditions of economic growth, is often a signal for tightening monetary policy.

The consumer price index, as a rule, is published monthly and has a significant impact on exchange rates, as it allows you to more accurately determine the direction of the state's monetary policy, as well as the state of consumer demand.

At the same time, the Central Bank often focuses not only on actual indicators of consumer inflation, but also on inflation expectations. If consumer price growth is expected to accelerate in the future, workers may begin to demand higher nominal incomes to increase their purchasing power. This in turn may force companies to increase selling prices, which will ultimately lead to higher consumer prices.

In addition, if companies expect higher rates of consumer inflation in the future, they will be inclined to increase their prices in the belief that consumer demand will not suffer.

Rising inflation rates make current consumption more attractive compared to saving.

On the one hand, the Central Bank’s monetary policy should prevent high rates of consumer inflation, as this is a sure sign of economic overheating.

On the other hand, too low indicators of the consumer price index can deprive households of the incentive to make purchases “now”, and companies to invest in production (Why invest in something that can only be sold later at a loss for yourself).

In light of this, deflation (a fall in prices relative to last year's level) poses a great danger to the economy, so central banks are trying their best to avoid it by lowering interest rates or even starting the process of quantitative easing.

Often, when making decisions, the monetary committee does not rely on the general index, but on the so-called core consumer price index (Core CPI). When calculating this indicator, changes in food and energy prices are usually not included, which are subject to sharp fluctuations due to changes in weather and seasonal factors, and due to the cyclical nature of economic development.

On the one hand, the core consumer inflation index is a more stable indicator, however, on the other hand, the excluded components account for about a quarter of the total volume and goods included in the CPI calculation, and have a noticeable impact on other groups of goods.

Calculation of the Consumer Price Index

This indicator is calculated on the basis of the consumer basket, which in a particular country includes various goods or services. The calculation process compares the value of this basket at the beginning of the period and at the end. As a result, you can get a picture of whether prices rose or fell over a given period.

Price increases are defined as inflation. As for its fall, it is called deflation (the reverse process of inflation).

Consumer price index, CPI (Consumer price index, CPI) is a price index that is calculated for a certain group of goods and services that determine the composition of the consumer basket of one resident of the country and is calculated for a certain period of time.

For example, in the United States, the consumer price index is calculated using 265 goods and services from 85 cities in the country. In Russia, when calculating, we take the consumer basket, the composition of which is approved by Federal Law No. 44-FZ “On the consumer basket as a whole for the Russian Federation.” It includes food, non-food products, and various services.

Thus, the consumer price index is the ratio of the entire consumer basket of the base year, which is valued at prices of the current year, to the consumer basket for the base year, which is valued at prices of the base year.

The Consumer Price Index is one of the most common price indices that plays an important role in the economy because is the basic value that serves as an impetus for the recalculation of wages, social benefits and other payments, which should occur regularly and automatically, for example, every quarter, annually or every six months, by organizations that hire workers.

The calculation method itself also plays an important role.

In addition, the price index cannot estimate what percentage of the price increase is attributed to the qualitative improvement of the product itself.

So, the Consumer Price Index is an indicator that helps measure the average cost of goods and services over a certain time period. The CPI is used to calculate the inflation rate. In fact, it can be called the “chief” in terms of inflation in a particular state.

The influence of consumer price indices on currency quotes

The influence of the CPI on the Forex market is difficult to overestimate. In fact, it is huge. This macroeconomic indicator can be considered the main one. At the time of publication, quite significant price fluctuations may begin in the market. In addition, the CPI is one of the main indicators for fundamental analysis, that is, for working with medium- and long-term trends.

If we consider the situation, other things being equal, then there is an inverse relationship between the value of a currency and inflation. Rising prices lead to the depreciation of the currency and, conversely, falling prices lead to an increase in the value of the currency. Here, in general, everything is logical. As prices rise, you will have to spend more money to purchase certain goods and services. If prices fall, less money is spent.

However, another important factor to consider for Forex traders is the intervention of central banks. When inflation is near its target levels, the central bank will not intervene unless sharp fluctuations in the CPI are expected.

But if inflation deviates from targets or changes in a direction unfavorable for the country’s economy, the central bank will intervene in the situation. The main tools in this case are interest rates and the asset purchase program that is fashionable today.

How can a central bank curb inflation? First of all, through rising interest rates. And here begins the first discrepancy with the basic theory of the inverse relationship between the value of a currency and inflation.

How will the market react to rising interest rates? Of course, the growth of the currency. It will be in demand, since rising rates will also make it a more profitable investment for deposits.

In many situations, the market begins to win back the increase in rates in advance (with rising inflation) and thus the process becomes directly dependent rather than inversely.

General or consumer inflation

General or consumer inflation, or, in other words, the consumer price index (CPI), is the weighted average change in the price of goods and services, excluding electricity prices. These prices are excluded because they are seasonally dependent on consumption and prices.

Products included in the CPI calculation are weighted according to their economic importance. In total, this list includes more than two hundred categories of services and goods. All categories of these products are divided into 8 main groups:

Food and drinks.
Housing expenses.
Cloth.
Fare.
Medical support.
Rest, recovery.
Education.
Communications.

The influence of the CPI index on forex trading

Changes in the prices of consumer goods are perhaps the most accurate measure of inflationary trends in an economy. Moreover, an increasing trend in CPI indicates that the country's economy is experiencing inflation or a decrease in the purchasing power of the currency.

Since the function of the government reserve is to keep inflation in check, the central bank may decide to raise interest rates to control the currency. And, as a result, the value of the national currency is growing with a moderate increase in the fundamental CPI index. A currency may also weaken in a hyperinflationary environment, in which inflation skyrockets and gets out of control.

The decline in interest rates in a deflationary economic environment is reflected in the declining CPI. Therefore, a falling CPI price index will generally harm the currency exchange rate.

Weaknesses and strengths of the consumer price index

Like all indices and indicators that are used in the analysis of Forex market data, the fundamental consumer price index (CPI) has its strengths and weaknesses.

The strengths of this index include:

— the ability to anticipate future fluctuations in currency rates;
— CPI is subject to serious observation and analysis in media sources;
— serves as a reliable basis for analyzing regional data, as well as industry data.

Weaknesses of the CPI include:

— this index is volatile from month to month;
— a fixed CPI has certain limitations that can distort the results;
— excluding data on electricity prices is good only in the long term, but they still need to be taken into account when calculating inflation.

The Consumer Price Index (CPI) has a big impact on forex trading. As an important economic indicator, the CPI affects not only Forex, but also interest rates and prices in the stock and bond markets. The Consumer Price Index is also used to adjust cash flow mechanisms such as pensions, health insurance and income.

As a result, many traders and investors realize that the CPI influences their strategies in one way or another. The consumer price index compares the cost of a household's consumer basket with the same consumer basket for the previous period.

The Consumer Price Index is an important indicator of inflation in any economy. Traders should monitor the CPI. Once investors begin to feel inflation approaching, they are required to change their investment strategies and look for alternative ways to invest their capital. An investor receiving about 20% dividends on an investment may lose the investment when the currency inflation adjustment is 20% or more.

Governments also closely monitor the CPI. There are several steps that the Central Bank or Federal Reserve can take to keep the CPI at an acceptable level. The CPI is also used to adjust payments to beneficiaries, military retirees and government employees. The CPI is also a guideline for adjusting the income tax structure to prevent tax increases that threaten inflation. All these actions have a direct impact on the foreign exchange market.

The CPI can also be affected by increases in the price of a particular currency. For example, rising oil prices could impact transportation, food, goods and services, and retail sales and, as a result, stretch the budgets of the middle class. In this case, a significant increase in the price of one product can trigger a domino effect, which will affect the strategies of investors and traders throughout the Forex market.

Conclusion

Traders who rely on fundamental analysis in their trading strategy need to know the Consumer Price Index. Since it is one of the most important indicators for the volatility of the Forex market.

Typically, the CPI is published monthly and has a huge impact on exchange rates. The reason for this influence is that it allows one to determine the exact direction of government monetary policy, as well as the state of consumer demand.

The material was prepared by Dilyara specifically for the site

The consumer price index is calculated using the formula:

Price index= , where

P 1 – price 1990

P 0 – price 1970

Q 1 – quantity

Index (25x2)+(2x25)+(7x12)+(8x25)+(6x10)+(30x3)+(1.2x5)

= ———————————————————————— =

prices (10.6x2)+(0.6x25)+(2x12)+(3x25)+(2x10)+(0.2x5)

Problem 12

Let's assume that the price index for consumer goods takes into account only three goods: food is 0.35, housing is 0.20, manufactured goods is 0.45. Food prices increased by 15% by the end of the year, housing prices - 30%, and prices for industrial goods decreased by 3%. Determine the growth rate (level) of inflation for the year.

Solution

Nominal income index

Real income index=—————————————— x100%=

Consumer price index

= , therefore real incomes decreased by 11% (100-89).

Problem 13

Based on the table below:

Calculate: 1) the inflation rate for each year, 2) using the “rule of 70”, determine the number of years required for prices to double.

Solution

Rate Price index 2nd year - price index 1st year

1. = ————————————————————— x 100%.

inflation price index 1st year

Inflation rate

From 1st to 2nd year=

From 2nd to 3rd year=

From 3rd to 4th year=

Number of years required for prices to double=

=——————————, therefore:

inflation rate(%)

1) year; 2) years, 3) years.

Problem 14

The property, purchased in January 1995 for 3,000 monetary units, was sold in January 1998. Inflation by year was: 1995 - 20%, 1996 - 15%, 1997 -35%.

Determine: the sale price of the property, if known. That its owner received a profit of 30% as a result of this operation.

Solution

You need to find out how much real estate cost in 1998 according to the rise in real estate prices and inflation using the discounting method.

New price taking into account inflation = 300x(1+0.2) x (1+0.15)x (1+0.3) x (1+0.35) = 3000 x 1.2 x 1.15 x 1 .3 x 1.35 = - 7265.7 monetary units.

If the owner wants to make a profit of 30%, then he must increase the new price by 30%, then the selling price should be 7265.7 x 1.3 = 9445.4 monetary units.

the owner will receive 2179.7 monetary units. profit (9445.4 – 7265.7)

Problem 15

Let's assume. What is produced and consumed are 3 types of goods. The table shows the quantity (units) and price per 1 unit in monetary units. each of them for 2 periods.

Calculate the Laspeyres index, Paasche index and Fisher index (1980 – base period.

Solution

Laspeyres index is a price index with base period weights, i.e. as weights we take the amount of goods produced in 1980.

General view of the index

where and are the prices of the i-th good, respectively, in the base (0) and current (t) periods;

Q i 0 is the quantity of the i-th good in the base period.

In this case

General view of the Paasche index (price index with weights of the current period)

, in this case

Both indices show a decline in the cost of living, but to varying degrees.

The Fisher index averages the result.

Problem 16

Property purchased in January 1995 for 3,000 monetary units. was sold in January 1998. Inflation by year was: in 1995. - 10%, in 1996 - 15%, in 1997 - 20% and in 1998 -25%.

Determine the sale price of the property if it is known that its owner received a profit of 28% as a result of this operation.

Solution

1. You need to find out how much real estate cost in 1997, taking into account inflation using the discounting method:

New price = old price x (1+0.1) x (1+0.15) x (1+0.2) x (1+0.25)=

3000 x 1.1 x 1.15 x 1.2 x 1.25 = 5692.5 monetary units.

2. To get a 28% profit, the seller must sell his property for 7286.4 monetary units. (5692.5 x 1.28).

Problem 17

In a conventional economy, three goods are produced: brooms, felt boots and bicycles. Based on the data given in the table, calculate the nominal and real GNP in 1990 and 1995, the deflator and the CPI, if 1990 is the base year.

How have the cost of living and price levels changed over this period?

Solution:

1) nominal GNP 1990 = real GNP 1990 (since this is the base year) = 2 x 50 + 7x20 + 25x10 = 490

2) nominal GNP in 1995 = 3x45 + 8x15 + 20x15 = 555

3) real GNP 1995 = 2x45 +7x15 +25x15=570

4) GNP deflator=(3x45 + 8x15 +20x15): (2x45+7x15+25x15)= 555:570= 0.97. Consequently, the price level decreased by 3%. Those. The economy experienced deflation.

Consequently, the cost of living has increased by 40%.

Problem 18.

Is it profitable to invest money in a project that requires a one-time investment of 200 thousand monetary units? and promises an income of 100 thousand monetary units by the end of the first year, and another 150 thousand monetary units by the end of the second year. and by the end of the third year - 50 thousand monetary units, if the annual inflation rate is 15%.

Solution:

To estimate future cash income, the discounting operation is used. If the inflation rate is forecast at 15% then relative to investment the income at the end of the first period will be =

At the end of the second year they will be:

At the end of the third year:

Over three years, income taking into account inflation will be: 87 + 113.4 + 33 = 233.4 thousand monetary units. It is obvious that this project, even taking into account inflation, is effective.

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(Consumer price index, CPI

In such a situation, with a high level of centralization, it is necessary to redistribute the rise in prices for consumer goods. For example, between goods such as Kalashnikov assault rifles and tarpaulin boots, the prices of which can be artificially reduced by the government of the country.

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Definition

Inflation – is a sustained increase in the general level of prices for goods and services in the economy. The reverse process - a decrease in the general price level - is called deflation.

Consumer Price Index as an Inflation Indicator

Various price dynamics indicators– producer price indices, gross domestic product deflator, consumer price index. When people talk about inflation, they usually mean the consumer price index (CPI), which measures the change over time in the cost of a set of food, non-food goods and services consumed by the average household (i.e., the cost of the “consumer basket”). The choice of the CPI as the main indicator of inflation is associated with its role as an important indicator of the dynamics of the cost of living of the population. In addition, the CPI has a number of characteristics that make it convenient for widespread use - simplicity and clarity of the construction methodology, monthly calculation frequency, and prompt publication.

The periods over which the CPI is measured may vary. The most common comparisons are the level of consumer prices in a certain month of the year with their level in the previous month, the corresponding month of the previous year, December of the previous year.

Statistical monitoring of prices, the necessary calculations and publication of data on the CPI in Russia is carried out by the Federal State Statistics Service.

Features of the Russian consumer basket

In Russia, as in countries with emerging markets in general, a characteristic feature of the consumer basket is a fairly high share of food products in it (36.5% in 2014). Their prices are quite variable. To a large extent, fluctuations in inflation in the food market are determined by changes in supply volumes, primarily by agricultural yields in our country and in the world, which significantly depend on weather conditions. Since the share of food products in the consumer basket is high, fluctuations in their prices can have a significant impact on inflation as a whole.

Another feature of the Russian consumer basket used to calculate the CPI is the presence of goods and services in it, the prices and tariffs of which are subject to administrative influence. Thus, the state regulates tariffs for a number of public utility services, passenger transport, communications, and some others.

In addition, prices for tobacco products and alcoholic beverages significantly depend on excise tax rates.

Consumer demand is satisfied through goods and services of both domestic and foreign origin. There are no statistical data on the share of imports in the CPI, but the share of imports in the structure of retail trade commodity resources can give an idea of it in terms of goods (in recent years - about 44%). The significant share of merchandise imports in the consumer basket determines the significant impact of changes in the ruble exchange rate on inflation.

Inflation factors

Prices may rise faster or slower. In the first case, they talk about an increase in inflation, in the second – about its decrease.

There are various reasons for changes in inflation. Let's look at them using the example of accelerating price growth. If the level of demand for goods and services exceeds the ability of supply to satisfy it, they speak of a pro-inflationary effect demand side factors. In some cases, the rapid growth of demand may be affected by too accessible loans and accelerated growth of nominal incomes of economic entities. Often these sources of excess demand are called "monetary factors of inflation"- pressure on prices due to the creation of excess money.

Inflation can also rise when an imbalance in the market for a product or service arises due to insufficient offers, for example, due to crop failure, restrictions on the import of products from abroad, or the actions of a monopolist.

Inflation can be caused by growth costs for the production and sale of a unit of product - due to rising prices for raw materials, materials, components, increased enterprise costs for wages, taxes, interest payments and other costs. Increasing costs can also lead to a decrease in production volumes and, further, to the formation of additional pro-inflationary pressure due to insufficient supply.

An increase in prices for imported cost components may be due to both an increase in world prices and a depreciation of the national currency. In addition, the weakening of the national currency can directly affect the prices of final products imported from abroad. The overall effect of a change in the exchange rate on price movements is called "carryover effect" and is often considered as a separate factor of inflation.

Economic theory identifies as a special factor inflation expectations– assumptions regarding the level of future inflation, formed by economic entities. The expected rate of inflation is taken into account by producers when making decisions regarding setting prices for their own products, wage rates, determining production volumes and investments. Households' inflation expectations influence their decisions about how much of the funds at their disposal to allocate to savings and how much to consumption. The decisions of economic actors affect the supply and demand of goods and services and, ultimately, inflation.

Negative consequences of high inflation

High inflation means a decrease in the purchasing power of the income of all economic entities, which negatively affects demand, economic growth, the standard of living of the population, and public sentiment. Depreciation of income reduces opportunities and undermines incentives to save, which prevents the formation of a stable financial basis for investment. In addition, high inflation is accompanied by increased uncertainty, which makes it difficult for economic actors to make decisions. All together, this negatively affects savings, consumption, production, investment and, in general, the conditions for sustainable economic development.

Benefits of Price Stability

Price stability means maintaining low growth rates in consumer prices, which economic actors neglect when making decisions. In conditions of low and predictable inflation, the population is not afraid to save in national currency for long periods, since they are confident that inflation will not depreciate their deposits. Long-term savings, in turn, are a source of financing investments. In conditions of price stability, banks are ready to provide resources to borrowers for long periods at relatively low rates. Thus, price stability creates conditions for increased investment and, ultimately, for sustainable economic development.

Consumer price index

Consumer Price Index, CPI (Consumer price index, CPI) is a price index that is calculated for a certain group of goods and services that determine the composition of the consumer basket of one resident of the country and is calculated for a certain period of time.

If we assume that the consumer basket includes only three types of goods, then an example of calculating the indicator will look as shown in the table below.

The Consumer Price Index is one of the most common price indices that plays an important role in the economy because

is the basic value that serves as an impetus for the recalculation of wages, social benefits and other payments, which should occur regularly and automatically, for example, every quarter, annually or every six months, by organizations that hire workers.

The important role of the consumer price index implies the need to create a unified methodology for calculating this indicator in the economy, which at one time would reflect the degree of change in the price level. For example, when calculating the CPI, only a small and limited number of goods that fall within the minimum level of consumption will be taken into account. Based on this, the price change index will be much lower and wage growth will not compensate for the increase in inflation, which may affect the reduction of incentives to work. A similar situation can happen if, for example, the consumer basket includes goods that were produced within the country. In such a situation, with a high level of centralization, it is necessary to redistribute the rise in prices for consumer goods. For example, between goods such as Kalashnikov assault rifles and tarpaulin boots, the prices of which can be artificially reduced by the government of the country.

The calculation method itself also plays an important role. For example, consider the following method for calculating the consumer price index, which is correct from a mathematical point of view and is even recommended for calculating the CPI, but gives a slightly different result than in the case shown above. The formula looks like this:

By determining the share of each group of goods included in the usual consumer basket and substituting prices into the formula, we get:

When calculating indices, statistical accuracy entails the creation of a single base and therefore the consumer price index in a country is based on a single base, which represents the base year's production volume or common shares of goods in the consumer basket. As a result, the CPI does not reflect the impact of price changes on changes in the share of consumption of any good. In addition, the price index cannot estimate what percentage of the price increase is attributed to the qualitative improvement of the product itself. For example, a car from 1960 and a car from 1990 differ significantly in their quality characteristics.

The consumer price index is different from an indicator such as the GDP deflator. The GDP deflator estimates the value of total output in current year prices. In addition, the GDP deflator takes into account the goods and services that make up the country's GDP, and the CPI only takes into account the goods and services included in the consumer basket.

Economics: English-Russian dictionary-reference book. — E.J. Dolan, B.I. Domnenko. - M.: Lazur, 1994.

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