Inflation and CPI

Inflation is commonly measured by CPI that measures the price changes of certain goods and services over time. However, to many of the members of the population consumes a lot more goods and services than those contained in the CPI calculation basket. Therefore, it does not necessarily reflect the changes in the price levels in our economies. Moreover, especially in some large countries, prices can vary in different areas due to the geographic distribution differences. In many economic activities including government policies, financial market activities, the inflation rate has been one of the most important factors to be considered; therefore, a more accurate inflation calculation model should be created.

Many governments have put into many efforts into improving the inflation rate calculation model. They put different weights on different goods and services to represent their weights in normal people's consumption. In addition, they amend the goods and services contained in the CPI basket to update people's consumption behaviour change over time. However, such calculation probably works better in the public sector than the private sectors. The CPI can reflect the ordinary people's living costs. In the private costs, the price changes in the sectors can change differently from the CPI changes. Therefore, when they are making their business decisions or consumption decisions, they should adopt their inflation in their individual sectors.

Moreover, my opinion is that the inflation calculation should be based on a general model that models the entire economy as a single market, and the inflation rate is the price change in this economy. The demand is the entire population income; however, the supply in this single market should take into account all supply goods that contain the supply from overseas. So under this circumstance, the inflation rate is based on the domestic incomes and the international economic outputs.