What You Are Actually Targeting
Somebody Built the Number You Are Targeting
Inflation is not observed. It is assembled, from a basket somebody chose, with weights somebody set, using prices somebody collected.
12 min145 XP available4 challenges
A consumer price index is a weighted average. The weights come from a survey of what households actually spend, so they change every year, and they differ between countries — energy is a much larger share of the basket in one euro area member than another. Everything not itemised here is the residual: services, goods, rents. Watch what a large move in a small weight does to the headline, and what it does to the rest.
Headline inflation
7.96%
What the newspaper prints
- Excluding energy and food
- 2.5%
The same basket, rescaled
Far higher in a poorer country — the same index means a different thing
Produce a headline above 10% while everything else is still running at 2%
- Try -40% — not yet
- Try 100% — not yet
- Produce a headline above 10% while everything else is still running at 2% — not yet
Answer to continue.