How is a viable inflation rate determined?

Question

How do economists separate price gouging, temporary or short term interruptions in supply and demand, black markets, and speculation, etc., to obtain a meaningingful inflation rate?

Or do they just throw everything in and average by history? And do we get one rate for world media consumption; or is there another rate used by the movers and the shakers?

This is not a home work question. If you are busy meaningful sources are appreciated.

Answer 1

This is a really complicated big-picture question, and so there's no simple answer.  Economists have a number of different metrics used to measure inflation that try to take some of the difficult factors you mentioned into account.  For example, you may have heard of the CPI (Consumer Price Index), which is probably the most popular measure of inflation and is generally based on a basket of goods that an "average household" would purchase.  As you can imagine, that in itself is subjective and difficult to define.

Other measures of inflation look at commodity prices, purchasing power, cost of living, or currency valuation.  There's no right answer.

Really what it comes down to is matching the inflation metric with what you want to use that metric for.  If you're interested in the effect inflation will have on normal spending to feed and cloth your family over the next 20 years, the CPI would be a good start.  If you're an international airline, then you'd be much more interested in currency valuation and commodity (oil) price inflation.  

Wikipedia has a number of good articles on different inflation metrics if you want to read more.

Answer 2

I'm sure that whatever they tell us will be DIFFERENT when THEY view it!  They are always going to tell us stuff that will keep us happy so that we don't riot!  ALL of that stuff is an estimate and a GUESS anyway!

If it weren't don't you think that the USA would be ACTUALLY in a DEPRESSION right now?  Not a recession!  The whole WORLD is going into an Economic Depression that will never be topped.  This is the TOTAL COLLAPSE of the WORLD SYSTEMS as we know them!  The govts, religions, and banks throughout the world are on the verge of collapse!  Everyone is breaking the rules and when we take them all to court and make them responsible they will crumble!  All debt will be forgiven and YES, there will be some chaos for a while but eventually we'll straighten the whole mess out.  The Ruling Elite MAY not be figured into the NEW SCENARIO however!  Humans are taking back control of the planet!  It will be completed by 2013 and the cavalry will be backing us uP at that same time.  We are living in historic times.  It's going to be wild and crazy in the meantime.  Lots of starvation, murderous weather, and more.

Here's a website that has some valuable links that will show you what's in store ... and this is a very POSITIVE website! http://2012.heavenforum.com

:-)

Peace ... Keep Your Fingers Crossed!  Also, pray A LOT!

Answer 3

Let's see, the CPI basically has a major flaw in it, it does not include wages.  This is one of the things that cause inflation's cost to be overestimate.  The CPI will say, for instance, prices of the fixed basket rose by 5 percent over the year.  But, what happened to wages?  See, if wages went up by 5 percent inflation really had no cost except for the basic cost of inflation which are menu cost, arbitrary distributions of wealth and confusion.  Obviously, inflation has been a problem that past 5 or 6 months, but wages will catch up.  A viable inflation rate is determined by the rate at which real GDP is growing.  If real GDP grows by 4 percent, inflation should be 4 to maintain the price level according to income.  Right now, the goal is around 3 because that is the growth rate of real GDP..at least it was 3 years ago.