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Economics focus Costs of living Jun 3rd 2004 From The Economist print edition Official inflation rates suit nobody perfectly OVER the past two decades, central bankers in many countries have earned praise for taming inflation. In America, the rate of increase of the consumer-price index (CPI) has fallen steadily, save for an upturn during the first Gulf war. Granted, the prices of assets— first shares, before they crashed; now, residential property—have risen dramatically. But consumer-price inflation has clearly been brought under control. This has generally been good news for consumers. But has everyone benefited to the same extent? Lately, there have been echoes of the days when inflation roared. Petrol now costs well over $2 a gallon in America and has touched £1 a litre (around $7 per American gallon) in Britain, where fuel taxes are much higher. Although inflation generally remains low, higher petrol prices cause more pain to some people than to others. If you drive a gas-guzzling SUV, the chances are that your personal cost of living is rising much faster than the official price index. If you walk or cycle to work, rising petrol prices make little difference to you: your personal inflation rate, other things being equal, is less than the official one. Roughly speaking, official price indices measure the price of the goods and services consumed by the “average” household. Official inflation rates are often used to determine annual increases in social-welfare benefits and old-age pensions, or as reference points for wage bargaining. But because everyone's spending
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This note was uploaded on 04/11/2009 for the course ECON 102 taught by Professor Serra during the Winter '08 term at UCLA.

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