The difference between inflation and consumer price index

In order to understand or know what the difference between two things is you are going to have to know and understand what each thing is individually. But sometimes in order to fully understand what one thing is you have to understand what other things are that are related to the object. This theory is even true when it comes to the difference between inflation and consumer price index. In order to understand what inflation is you are also going to have to understand what deflation is so that you can see what the difference is between inflation and the consumer price index.

Before we begin to talk about the consumer price index let's take a moment to talk about price inflation and price deflation. One thing that you need to know about both price inflation and price deflation is that over time and for a matter of convenience the word price has been dropped from both terms, so that we now know them as inflation and deflation. But inflation is the percentage increase in the price of goods over a certain period of time, some periods the prices rise rapidly and in other cases the prices rise slowly. Deflation is the exact opposite of inflation, deflation is the percentage decrease in the price of goods over a certain period of time and like with inflation the percentage decrease can happen rapidly or slowly.

Now let's take a look at the consumer price index, like the name suggests the consumer price index is actually an index and an index is a number used to measure change. So basically what that is telling us is that the consumer price index is something that is going to be used to measure the change in something else. Basically what the consumer price index does is measure the change between the prices of products over a certain period of time. The government is the group that created the consumer price index and every so often they choose a base year and set it so that it equals to 100. Currently the base year is 1984 and before that it was 1967.

So now that we know who created the consumer price index and what it is we need to know how it works. Basically how the consumer price index works is that every month the Bureau of Labor Statistics goes around the country surveying the prices of various products. Once they have surveyed the various prices they publish the results as a number. How they do this is compare the cost of the product now to what it cost in 1984, and then publish the results as a number rather than a percentage. For example if something cost $1.95 today and it only cost $1.00 back in 1984 the result that would be published would be 195.0.

Now that we understand what each of these things are both inflation and the consumer price index we still need to figure out what the difference is between the two. Basically what the difference between the consumer price index and inflation is the fact that one is displayed as an actual number and the other is displayed as a percent. But one thing that you need to know about both the consumer price index and inflation is that in order to determine the percentage of increase or decrease in a product prices we are going to need to do some calculations using the numbers from the consumer price index. So basically you are going to have to use the consumer price index results to determine the price inflation or deflation because the consumer price index alone does not tell us what the current inflation rate is.