Abstract
As we have seen in other chapters in this book, the construction of a price index for measuring inflation is a complex business; however, at the lowest level of most price indices, it is reduced to a more simple problem: How to measure the average price change when we are faced with only price information? In this chapter, the main methods for doing this are re-introduced and the relationships between them are considered before we discuss the various ways in which people choose between the available methods.
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Notes
- 1.
We are indebted to the work of Diewert and Nakamura (1993) in providing historical references for the discussion of the early pioneers of index numbers.
- 2.
For a strictly concave function \(f( \cdot )\) then \(f\left( {\frac{{\sum\nolimits_{i} w_{i} x_{i} }}{{\sum\nolimits_{i} w_{i} }}} \right) \ge \frac{{\sum\nolimits_{i = 1} w_{i} f(x_{i} )}}{{\sum\nolimits_{i} w_{i} }}\) and the inequality is reversed where \(f( \cdot )\) is a convex function.
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O’Neill, R., Ralph, J., A. Smith, P. (2017). Measuring Inflation at a Detailed Level. In: Inflation. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-64125-6_11
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