What is inflation?
Inflation is basically a permanent increase in the general price level . For example, if a piece of butter cost $1.1 , then the price would rise with the passage of time . A team of Financial Experts note this on almost everything , but their main focus is on Food and daily use products which can effect an ordinary person .
It is often discussed that inflation is negative in figures but in fact, the European Central Bank has the main goal to ensure inflation rate between 0 – 2%. Hence with this inflation rate steady and sustained economic growth could be possible.If the inflation is at 0% is called stagflation but if its below 0% it means deflation .
How is inflation calculated according to the definition of inflation?
After every five years, the Census Bureau review approximately 60,000 households. They document their spending habits over a period of half year. They create a list of about 700 products and review them . The prices of these products table will be collected monthly and compared with the previous year. The resulting value is then the so-called consumer price index and indicates the level of inflation in comparison to the previous year.
What is the Harmonized Index of Consumer Prices (HICP)?
To compare different countries with each other, we need a uniform measuring system, because what the Canadian buy every day and consequently have in their product list is not necessarily what a French, Spanish or English buy and have in their product list . This problem has been attempted to compensate by having introduced the so-called harmonized consumer price index. You should be aware of when using the HICP but not always, that the data are based only on statistics and therefore reality in some cases differ significantly .