Question

There are different cultures and backgrounds that need to be considered in what consumers are most likely to need or buy.  dose it help by taking income, background, and cultural diversity into account will help the measurement of inflation be more specific.

Answer 1

Inflation is the measure in change of prices over a period of time calculated as against a base year price. Calculation of inflation is important as it directly impacts the purchasing power and hence standard of living.Inflation also affects other sectors of economy and hence central banks keep a tight check on its figures.

Measuring inflation

Inflation is measured through various prices indices which consist of a range of goods. Periodic variation in the price of these goods is what constitutes the Inflation measurement.

Role of culture,income and background in inflation calculation

Monetary policies of central bank and fiscal policies of government very much depend on the accurate figures of inflation.Accuracy of this figure depends on the basket of the goods used to calculate inflation.

This basket of goods prepared for price index measurement in turn depends on the background, income and cultural attributes of that time and place.Each set of people have differing lifestyle and hence differing commodity usage. Price level of all need not vary in same proportion.It may be possible that the meat industry is facing inflation but not the grain industry or the automobile is under stress but the retail market is doing well.

So analysing income and cultural background diversity is important for a clearer picture regarding inflation.

• Example For a culture which is mostly vegan, there is no use of consumer goods basket having non vegan items like mutton, fish on its list.Similarly for a rural setting the composition of basket will be different than one of metros.
• Differnt income group favour different range of goods. While for a average industrial worker brand like Ribok, Denim,Levis may be a rare selection ,for a high income group this is a regular use commodity.

Keeping in mind the differnt needs of people of varying background, some countries have differnt price indices for these. There is separate index for Industrial worker, Rural wage earner,for cities and rural areas.

This helps us get a more accurate picture of actual inflation levels and make it more realistic based on larger and diverse sample size.