Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324964 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11973
Publisher: 
CESifo GmbH, Munich
Abstract: 
Inflation is the percentage change in the CPI over a given period of time. It is usually calculated over a year (year-on-year inflation) and over a month (month-to-month inflation). Even if prices are not currently rising from month to month, the year-to-year inflation rate could still be positive and high. As shown in this article, it is possible that, during a certain period, the cost of living in a given month is the highest but the year-on-year inflation in that month is the lowest. The cost of living and the inflation rate may move in opposite directions. This accounts for the well-known difference between measured (official) inflation and consumers' perceived inflation. Using the CPI, I propose a simple solution that unambiguously ensures that a fall (a rise) in the inflation rate indicates that we are getting closer to (farther from) a 'target' cost of living.
Subjects: 
annual inflation
consumer price index
cost of living
monthly inflation
perceived inflation
JEL: 
E31
H25
J31
Document Type: 
Working Paper
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