Question

3. Inflation a) Why do the 3 measures differ? FRED -Comme Price Index for All Urban Consumers All hominus. City Average -Gross Domestic Product Implicit Price Dellato - Personal Consumption Expenditures ududing food and Energy chain type price inden) 8 8 8 Percent Change from Year Ago 2000 2002 2004 S US Sources: BEA BUS

Answer 1

CPI-All items includes all goods and services that are consumed by typical US households. They include both domestically produced and imported goods.

GDP deflator is the ratio of final goods and services produced during the year valued at current year prices, to final goods and services produced during the year valued at a designated base year prices. They include only domestically produced goods, and also includes goods that are included in GDP which are not consumed by households (for example, military expenditure).

Personal consumption excluding food and energy is a measure of core inflation, which excludes goods which have highly volatile prices.

Therefore, inflation rate measured using each of the above indices are different.