Inflation:= change in the price of the basket of goods [= a representative sample of GDP]

  • Interest rate inflation rate [← explained later]

  • Historically, price of capital equipment (relative to consumption goods) have gone down …but the price of housing have gone up → thus must know inflation of what?

    • Total Inflation: CPI measured using the representative basket of goods
    • Core Inflation: represents the long run trend in the price level.
      • In measuring long run inflation, transitory price changes should be excluded.
      • ⇒ Exclude items frequently subject to volatile prices, like food and energy
      • i.e. the change in Core CPI
  • Inflation data is often shown as Year-over-Year (YoY) which means you can’t compound