Measuring inflation

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4 Terms

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Indexes

A price index is compiled by using the prices of a representative range of goods and services which are recorded on a regular basis.

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Weighting:

The difference in the importance of items in an index is solved through a weighted index which reflects the relative importance of each item.

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Inflation rate:

The inflation rate is determined by using changes in the CPI and/or PPI index. The figures for each month are compared to the corresponding month in the previous year.

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Inflation targeting:

Forms part of monetary policy set by government and is managed by the Reserve Bank to keep inflation within the range as set by the Minister of Finance (between 3% and 6%).