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Ekstrom Library

Government Resources: Economy: Prices

What is Inflation and How is it Measured?

Inflation has been defined as a process of continuously rising prices or equivalently, of a continuously falling value of money.

Various indexes have been devised to measure different aspects of inflation. The CPI measures inflation as experienced by consumers in their day-to-day living expenses; the Producer Price Index (PPI) measures inflation at earlier stages of the production process; the Employment Cost Index (ECI) measures it in the labor market; the BLS International Price Program measures it for imports and exports; and the Gross Domestic Product Deflator (GDP Deflator) measures inflation experienced by both consumers themselves as well as governments and other institutions providing goods and services to consumers. Finally, there are specialized measures, such as measures of interest rates.

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