measurement of inflation is the consumer price index (CPI). The CPI measures the cost of a fixed basket of goods relative to the cost of that same basket of goods in a base year. Changes in the price of this basket of goods approximate changes in the overall level of prices. The seasonally adjusted consumer price index in March was 176.3. The price index was equal to 100 during the period from 1982 to 1984. The interpretation is that prices in market basket of goods purchased by the typical consumer increased from the 1982-1984 period to March 2001 by 76.3 percent. Inflation is usually reported in newspapers and television news a percentage change in the CPI on a monthly basis. For example:MonthPrice LevelMonthly Inflation RateAnnual Inflation RateFebruary176.2176.3 - 176.2 176.2= 0.0006 or .1%1.000612 = 1.007 or 0.7%March176.3The seasonally adjusted rate of increase in the consumer price index during the month of March 2001 was .1 percent or one-tenth of one percent. The rate of increase in the consumer price index over the last twelve months was 2.9 percent.TrendsThis month's increase is the smallest since August of last year. The slower rate of increase in inflation during March was primarily due to a decrease in the pricing for natural gas, energy, tobacco and transportation as well as smaller increases in the pricing for medical care and apparel.The rate of inflation has been quite volatile from month-to-month during 1999 and 2000. During October, November and December, prices increased at an annual rate of 2.1 percent, slightly lower than earlier in the year. In the first quarter of 2001, the annual rate of inflation was 4.0 percent. As shown in the graphs below, inflation has increased slightly since 1998, but had been slowing during the last part of 2000. If inflation is considered by quarters during 2000, the annual rates of increase were 6.1, 2.6, 2.8, and 2.1 percent. Compared to the rates of inflation in the 1970s, much of...
