Chapter 23. Measuring The Cost of Living (and Inflation). Measuring the Cost of Living. In determining the cost of living, the Bureau of Labor Statistics (BLS) first identifies a “market basket” of goods and services the typical consumer buys.
Measuring The Cost of Living (and Inflation)
An Index Number is the value of some entity (e.g., prices) relative to a base period. Generally, the base year has an index value equal to 100.
The Inflation Rate is the percentage change in the CPI from the preceding period
Example: Table 23-1 (p. 513)
Current Year Dollars =
Past Year Nominal Value X [(Price index in current year) ÷ (Price index in past year)]
$20,000 in 1954 is worth how much in 2002?
$20,000 X 180.1/26.9 = $133,903
Value in Past Year Dollars =
Current Year Value X [(Price index in past year) ÷ (Price index in current year)]
$60,000 in 1990 is worth how much in 1983?
$60,000 X 99.6/130.7 = $45,723
15% - 10% = 5%