Consumer Price Index (CPI):

- Measures the price level and inflation in an economy.

- Allows for international comparisons as it adheres to international standards.
- Presented as an index, with a base year's index set at 100.
- Inflation rate is calculated by comparing the current year's index to the previous year's index.

Calculation of CPI:
1. Identify a "basket of goods" that represents what a typical household spends money on.
2. Collect data from a sample of households to determine their spending patterns.
3. For each item in the basket, surveyors record its price regularly (e.g., monthly) from various
sources and regions.
4. Calculate the percentage change in the price of each item over time.
5. Convert these price changes into index numbers.
6. Calculate the weighted average of the index numbers to determine the overall CPI.

Changes Over Time:

- The composition of the basket of goods changes over time to reflect evolving consumer
preferences and spending behavior.
- The weights assigned to each item in the basket are updated to account for changes in
spending patterns, income levels, and other factors.
- For example, new items like smartphones may be added to the basket, and items such as
leisure travel may receive greater weight as incomes rise.

Here are the key points regarding measuring unemployment and the Producer Price Index
(PPI):

Consumer Price Index (CPI):

- Measures inflation and the price level in an economy.
- Represents changes in the cost of living.
- Calculated by comparing the prices of a "basket of goods" over time.
- The basket reflects the spending patterns of a typical household.
- Adjustments are made to account for quality improvements in goods.
- May not include certain housing-related costs, such as mortgage interest payments.

Producer (Wholesale) Price Index (PPI):

- Measures changes in the prices of goods bought and sold by manufacturers.
- Includes input prices (materials and fuels purchased by manufacturers) and output prices
(factory gate prices).
- Input price indices reflect changes in materials and fuel prices.
- Output price indices measure changes in prices of goods sold by manufacturers.
- Used as an indicator of future trends in consumer inflation (CPI).
- A rise in PPI may lead to an increase in CPI, but the relationship is not perfect and may have a
time lag.
Measuring Unemployment (ILO Measure):
- An essential measure of economic performance.
- Standardized by the International Labour Organization (ILO) for international comparisons.
- Defines the population of working age as those within a specific age range (e.g., 16-65).
- Unemployed individuals, according to the ILO measure, are those without a job, actively
seeking work in the past four weeks, and available for work in the next two weeks.
- Includes individuals who have found a job and are awaiting its commencement in the next two
weeks.