What are the different methods to measure inflation?

Answer 1

The 2 main methods are:
1) a consumer price index. The stats authority finds out what people buy (in the UK it's done with a General Household Survey -- a scientific sample of people keep an exact diary of what they spend for 2 weeks and a different sample the next two weeks and the govt builds up a picture of what epople are buying) and then it weights prices of items in a large basket based on the results. This weighted index is then recalculated each month as prices change.

2) a GDP deflator. You measure the rise in GDP in money terms and then you also estimate how much it has changed in real terms ie at constant prices. The difference (geometric) is a true measure of inflation.


NB 1) Ideally the indices should be seasonally adjusted. Some prices always go up at certain times of year and down at other times e.g. air fares are cheaper in January than in August.

2) Governments sometimes like to bend the consumer price index to policy needs e.g. by taking out fuel and food prices, or mortgage interest rates. They then publish an "adjusted" price index.

Answer 2

a tire pressure guage is one method.