“The total demand for all goods and services in an economy at any

given price level over a period of time”.

(Expenditure based GDP : The actual value of expenditure)

“The total value of output of the economy at a given price level at a given point in time.”
Two principle measures
The Consumer Prices Index (CPI)
The Retail Prices Index (RPI)

The Office of National Statistics (ONS) compile the CPI and RPI ONS Inflation
Both measures are based upon a basket of goods and services which is designed to represent
typical purchases of consumers throughout the UK
There are around 700 items in the basket of goods and services
Different items are weighted according to their relative importance in terms of how much their
price changes impact upon consumers
For example, petrol is given a high weighting given that it forms a large part of individuals
disposable income and there are few direct substitutes ONS Inflation
 Whilst the Office of National Statistics goes to great lengths to ensure the accuracy of its data,
in reality each household and individual will experience a different rate of inflation

Few people will fit the definition of “average” as defined by the basket of goods and services

The governments targeted measure of inflation is the CPI, which excludes mortgage
payments and their associated interest

For many households, the monthly mortgage payment represents their biggest item of
expenditure, but it is excluded from the CPI calculations

The CPI does not recognise improvements in the quality of goods and services over time

For example, the prices of many electronic items e.g. televisions, computers have fallen in real
terms, whilst quality has improved markedly

Producer price index (PPI) An average of the prices received by producers of goods and
services at all stages of the production process.