Economic 2, chapter 2 - measuring aggregate prices and their evolution through time

What is a price index?

Measure of the level of a basket of goods and/or services at a given date, compared to the price level of the same basket at a chosen reference date (baseline date)

What is a basic price index?

Only one product enters the basket. It quantifies the evolution of the products price between the baseline date and the given date

What is a composite price index?

Measures the evolution of a set of prices (consumer price index, stock market index, etc.)

What is a “good” composite index?

Index to which one grants a oven weight to the price of each product, with the weight depending on the importance of the said product in the global basket

What does a las peters Pi measure?

The evolution prices by tracking the change in the price of a basket of goods and services relative to a specified base period weighing (ie. The composition of the basket remains fixed)

What is the consumer price index (CPI) published by the FPS-Economy?

A measure that examines the average change over time in the prices paid by consumers for a basket of goods and services. The basket is renewed yearly to match the times and its split into 12 categories

What is the “indice sante”?

CPI following the same basket, minus alcoholic drinks, tobacco- based products and motor fuels

What is the harmonized CPI?

CPI computed using a basket of goods and services harmonised at the EU level, so as to be able to make comparisons between EU countries

What are the potential biases in the inflation rate measure? 3

1. Fails to take into account product quality

2. Fails to integrate rapidly new products

3. Fails to take into account the substitution mechanism (prices of some things increase faster, and consumers might move to different products)

What is a real variable?

Variable that has been constructed by eliminating the impact of the aggregate prices evolution on a nominal variable (ex. Real gdp vs nominal gdp)