what are some important price index
- consumer price index and producer price index and the Dow Jones Avg
What is the Consumer price Index (CPI)
- published monthly by US Bureau of labour statistics
- primary measure of the cost of living in the USA
- consists of a market basket of 400 items including food, housing, clothing, transportation and medical items
- a weighted avg price index with fixed weights
- the weight applied to each item derives form a usagae survey of urban families throughout USA
What is the Producer Price Index (PPI)
- also published monthly by US Bureau of labour and statistics
- measures the monthly changes in prices in primary markets in the USA
- based on prices for the 1st transaction of each product in nonretail markets
- all comodities sold in commercial transactions in these markets are represented
- covers, raw manufactured and processed goods at each level of processing and includes the output o findustries classified as manufacturing, agriculture, forestry, fishing, mining, gas and electricity and public utlities
what is a common use of the PPI
leading indicator of future trends of consumer prices and cost of living
What does the Increase in PPI mean
reflects producer price increase that will eventually be passed on to consumers through higher prices
What are the weights for the various items in PPI
based on value of shipments
- uses the Laspeyres method
What is the Dow Jones Avgs
- indexes designed to show price trends and movements associated with common stocks
- best known dow jones index is - DOw Jones Industrial Avg (DJIA)
What is the DJIA
- based on commons stock prices of 30 larger co/s
- it is the sum of these stock prices /a number
- the number is revised from time to time to adjust for stock splits and switching of cos in the index
What are some other Dow Jones Avgs
1 computed for 20 transportation stocks and 15 utility stocks
Where can you find Dow Jones Avgs
- Wall street Journal
2. other financial publications
What does it mean by deflating a series by price indexes
a total $ amount of inventory up by 10% might mean the physical inventory is 10% larger
- this could be misleading
- need to adjust the time series to eliminate the price change effect
What is the definition of deflating the series
whenever we remove the price increase effect form a timeseries
What are real wages or purchasing power of wages
based on deflating an hourly wage index
What are real wages good for
are a better measure of purchasing power than actual wages
What can you use to deflate Hourly wages
CPI
What is another name for deflated series for wages
real wages
what is the formula to deflate hourly wages
( hourly wage rate in each year / corresponding value of CPI ) x 100
What does GDP stand for
Gross Domestic Product
What is GDP
total value of all goods and services produced in a given country
If GDP is not deflated by a price index what happens
overtime CDP will show gains that are in part due to price increases
How do you calculate the price relatives for an item
(newest price per unit / newest price per unit) x 100
