Thursday 19 March 2009

Consumer price index and retail price index

Consumer price index is a measure of changes in the price of a representative basket of CONSUMER goods and service. It is the main measure of inflation. That is if there is a rapid increases in CPI, high inflation would cause the economic unstable, and a reduction in purchasing power, the value of money falls.

Retail price index is used to adjusting pension and benefits to take into account of changes in inflation and frequently used in wage negotiations.It measures the average change in prices of consumer goods and services each month. If too much money chasing too few goods, RPI will increases, which leads to inflation indeed. Therefore, government might use Monetary police to correct it by rise interest rate, reduce money supply, increase exchange rate.

Is it correct? I am a bit confused with it

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