Solutions being used today
Consumer Price Index
The Consumer Price Index (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. There are separate indexes for two groups or populations of consumers:
Consumer price indexes often are used to escalate or adjust payments for rents, wages, alimony, child support and other obligations that may be affected by changes in the cost of living. There is a fact sheet explaining how to use the CPI for escalating contracts..
An additional price index called the Chained Consumer Price Index (C-CPI-U) is also available. This measure is designed to be a closer approximation to a "cost-of-living" index than the CPI-U or CPI-W.
Producer Price Indexes
The Producer Price Indexes (PPIs) are a family of indexes that measure changes in the selling prices received by domestic producers of goods and services. They formerly were referred to as Wholesale Price Indexes. When the PPIs are released, the news media will most often report the percentage change in the index for Finished Goods.
Producer Price Indexes also can be used in escalation contracts. A fact sheet explaining the details is available.
Import and Export Prices
The International Price Program measures change in the prices of imports and exports of nonmilitary goods between the United States and the rest of the world.
There are two simplistic and familiar answers which are sometimes proposed -- simple, familiar, and too extreme. One of these answers is to impose a complicated scheme of Federal government wage and price controls on our entire free economic system. The other is a deliberate recession which would throw millions of people out of work. Both of these extreme proposals would not work, and they must be rejected.
The Committee for Economic Development (CED), a proponent of voluntary wage and price controls, in a recent discussion of measures for controlling inflation stated, “. . . while appropriately stabilizing fiscal and monetary policies are clearly essential for the containment of inflation, it seems doubtful that these policies alone can fully succeed in reconciling price stability and high employment.” The CED further stated, “. . . that the United States should include voluntary wage-price policies among its tools for reconciling price stability and high employment.” I find, however, that in May 1946, near the end of that period of mandatory controls, the CED issued a statement which represents a different view. At that time it concluded, “. . . prices cannot be centrally controlled for any sustained period without inefficiency, inequity, breakdown of respect for law, and most important, serious danger to our personal and political freedoms.”
Inflation targeting is an economic policy in which a central bank estimates and makes public a projected, or "target", inflation rate and then attempts to steer actual inflation towards the target through the use of interest rate changes and other monetary tools. Because interest rates and the inflation rate tend to be inversely related, the likely moves of the central bank to raise or lower interest rates become more transparent under the policy of inflation targeting. Examples:
The Consumer Price Index (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. There are separate indexes for two groups or populations of consumers:
- The CPI for All Urban Consumers (CPI-U) is the index most often reported by the national media.
- The CPI for Urban Wage Earners and Clerical Workers (CPI-W) is the index most often used for wage escalation agreements.
Consumer price indexes often are used to escalate or adjust payments for rents, wages, alimony, child support and other obligations that may be affected by changes in the cost of living. There is a fact sheet explaining how to use the CPI for escalating contracts..
An additional price index called the Chained Consumer Price Index (C-CPI-U) is also available. This measure is designed to be a closer approximation to a "cost-of-living" index than the CPI-U or CPI-W.
Producer Price Indexes
The Producer Price Indexes (PPIs) are a family of indexes that measure changes in the selling prices received by domestic producers of goods and services. They formerly were referred to as Wholesale Price Indexes. When the PPIs are released, the news media will most often report the percentage change in the index for Finished Goods.
Producer Price Indexes also can be used in escalation contracts. A fact sheet explaining the details is available.
Import and Export Prices
The International Price Program measures change in the prices of imports and exports of nonmilitary goods between the United States and the rest of the world.
There are two simplistic and familiar answers which are sometimes proposed -- simple, familiar, and too extreme. One of these answers is to impose a complicated scheme of Federal government wage and price controls on our entire free economic system. The other is a deliberate recession which would throw millions of people out of work. Both of these extreme proposals would not work, and they must be rejected.
The Committee for Economic Development (CED), a proponent of voluntary wage and price controls, in a recent discussion of measures for controlling inflation stated, “. . . while appropriately stabilizing fiscal and monetary policies are clearly essential for the containment of inflation, it seems doubtful that these policies alone can fully succeed in reconciling price stability and high employment.” The CED further stated, “. . . that the United States should include voluntary wage-price policies among its tools for reconciling price stability and high employment.” I find, however, that in May 1946, near the end of that period of mandatory controls, the CED issued a statement which represents a different view. At that time it concluded, “. . . prices cannot be centrally controlled for any sustained period without inefficiency, inequity, breakdown of respect for law, and most important, serious danger to our personal and political freedoms.”
Inflation targeting is an economic policy in which a central bank estimates and makes public a projected, or "target", inflation rate and then attempts to steer actual inflation towards the target through the use of interest rate changes and other monetary tools. Because interest rates and the inflation rate tend to be inversely related, the likely moves of the central bank to raise or lower interest rates become more transparent under the policy of inflation targeting. Examples:
- if inflation appears to be above the target, the bank is likely to raise interest rates. This usually (but not always) has the effect over time of cooling the economy and bringing down inflation.
- if inflation appears to be below the target, the bank is likely to lower interest rates. This usually (again, not always) has the effect over time of accelerating the economy and raising inflation.