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Inflation is the decline in value of the currency. CPI is how we normally attempt to measure inflation since asking "How much will you pay for a dollar today?"
by randomdata 5y ago
Inflation is the decline in value of the currency. CPI is how we normally attempt to measure inflation since asking "How much will you pay for a dollar today?" will not yield a useful answer. You are right that the measuring is done in hindsight. But the decline in value of the currency is responsible for prices rising to compensate.
- pmontra 5y agoThe value of a currency can decrease compared to other currencies but prices can stay the same inside a country. What happens is that you have less of everything especially for goods that depend on trade with other countries.
- randomdata 5y agoI am referring to the value of the currency compared to itself in the past. A dollar today is not worth the same amount as a dollar yesterday. Inflation is that decline in value over time. Less commonly, it is also possible for a currency to become worth more over time, which is what we refer to as deflation. If, for argument's sake, a dollar halved in value, the price of a widget of constant value would double to maintain equality in the exchange. What makes things complicated is that the value of the widget isn't constant and can also change over time, so we can't just look at that widget to see how the value of the currency is changing. Instead, we try to look for price trends across a wide range of products (CPI) to try and infer what is related to currency devaluation rather than changing values of other goods and services.