Have you ever wondered how the government and economists measure inflation? According to The American Heritage Dictionary of the English Language, published by the Houghton Mifflin Company, inflation is a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money. Another simplistic definition of inflation is a general and progressive increase in prices paid for goods and services. 

According to investorwords.com ,inflation, the opposite of deflation, is the overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Not only do dictionaries argue over the definition of inflation, but economists continue to argue over its primary cause. However, it is generally agreed, in most circles, that economic inflation may be caused by either an increase in the money supply or a decrease in the quantity of goods.

Adding to this confusion is the imperceptible differences between Inflation and the Consumer Price Index (CPI). The Consumer Price Index is, as its name implies, an index, or "a number used to measure change." The government chose an arbitrary date to be the base year for this index and then made that number equal to 100. Currently the year chosen as the baseline for this index is 1984 (or more accurately, the average of the years 1982-1984). Previously the base year for the CPI was 1967. Every month the Bureau of Labor Statistics (BLS) surveys prices around the country for a basket of products and publishes the results as a number. The current CPI number is 184.3, which means that there has been an 85% increase in prices since 1984. The current annualized inflation rate stands at 1.88 percent.

Most people don't ever think about inflation or care about the CPI numbers. My reasons for not caring though are not very altruistic; they're actually rather simple in nature. The numbers just don't make sense to me anymore. Just about everything in my day-to-day life costs more today than it did this time last year or the year before. And these are just a few examples.

The average price of an automobile in America now costs over $30,000 for the first time in history. Auto insurance rates have been up each of the last three years, with average auto insurance up over 25% during that time. The average price of a 30-second commercial spot during the Super Bowl is $2.5 million, a seven percent increase from last year. 

No free ride anymore: The school bus fare for public school students in Hawaii will increase by 40%, or a dime, to 35¢ each ride on the first day of the second semester in January. Bus rides on Madison, Wisconsin's Metro line will now cost $1.25, up from $1.00. One of the biggest bus fare increases in Milwaukee County Transit System history takes effect this month. The new rate schedule, unveiled earlier this month, calls for raising the basic fare to $1.75 for adults who pay cash on the bus. If the County Board agrees, that would be a boost of 25 cents, or about 17%, from the current $1.50 fare.

Health care costs surged to record levels in 2003, outpacing economic growth for the fourth straight year. The United States actually spends more per person than any other developed nation. In fact, personal health insurance costs are up double digits in just the past two years. 

On a more comical note, you could buy 60 feet of coiled steel wire, commonly known as a Slinky in 1945, the year it was introduced, for $1.00. Today that same toy cost $1.97. The average cost of a wedding dress has gone up nearly 50% during the past ten years, to an average of $22,360. 

Theater chains raising price of ticket. Two major movie theater chains are adding 25 cents to the price of a movie ticket, pushing the cost of adult admission above the $10 mark for the first time. Loews Cineplex and United Artists began charging $10.25 for an adult ticket and $6.75 for a child's ticket in the past week. Loews defended the price increase, saying "it was fair considering the rising costs of other entertainment and the rate of inflation."

Some services are obviously experiencing much higher rates of inflation than are reflected in the CPI. The cost of home insurance, car insurance and childcare are all increasing by double digits, putting a crimp on consumers' pocket books. Higher average mortgage payments, increases in the cost of home heating oil, higher postal charges and increases in the cost of tobacco products and food are eroding our buying power and not truly being reflected in the often published inflation reports. By some estimates, the actual cost of basic services in our service economy is now increasing by over 11% annually.

Since World War II, there have only been two years in which inflation declined, with the average annual inflation rate for the past 50 years hovering around 4.0%. So to nobody's surprise, as prices rise each year, the value of everyone's dollar declines. Beneath the surface, inflation continues to march on, ever so quietly, rarely making headlines, as a static dollar falls further and further behind. 

Economists say the strengthening U.S. economy combined with a weaker dollar overseas is beginning to give companies a little more pricing power. Still, Federal Reserve Chairman Alan Greenspan, in a recent speech, said inflation remains subdued even as the dollar has fallen by roughly 25 percent against major foreign currencies and the budget deficit blossoms by a few trillion dollars.

Pure and simple, inflation is bad for the economy and our pocketbooks. It's the "real" things we buy and need in our daily lives that have risen two to three times faster than the CPI in the past twenty years. Unfortunately inflation has become an integral part of our economy and will continue to run rough shod through our everyday lives, continuing to take a big bite out of everybody's wallet. As a famous economist once stated so eloquently back in the early 1980s, "I guess you could say that with inflation, everything gets more valuable except money."

Have you ever wondered how the government and economists measure inflation? According to The American Heritage Dictionary of the English Language, published by the Houghton Mifflin Company, inflation is a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money. Another simplistic definition of inflation is a general and progressive increase in prices paid for goods and services. 

According to investorwords.com ,inflation, the opposite of deflation, is the overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Not only do dictionaries argue over the definition of inflation, but economists continue to argue over its primary cause. However, it is generally agreed, in most circles, that economic inflation may be caused by either an increase in the money supply or a decrease in the quantity of goods.

Adding to this confusion is the imperceptible differences between Inflation and the Consumer Price Index (CPI). The Consumer Price Index is, as its name implies, an index, or "a number used to measure change." The government chose an arbitrary date to be the base year for this index and then made that number equal to 100. Currently the year chosen as the baseline for this index is 1984 (or more accurately, the average of the years 1982-1984). Previously the base year for the CPI was 1967. Every month the Bureau of Labor Statistics (BLS) surveys prices around the country for a basket of products and publishes the results as a number. The current CPI number is 184.3, which means that there has been an 85% increase in prices since 1984. The current annualized inflation rate stands at 1.88 percent.

Most people don't ever think about inflation or care about the CPI numbers. My reasons for not caring though are not very altruistic; they're actually rather simple in nature. The numbers just don't make sense to me anymore. Just about everything in my day-to-day life costs more today than it did this time last year or the year before. And these are just a few examples.

The average price of an automobile in America now costs over $30,000 for the first time in history. Auto insurance rates have been up each of the last three years, with average auto insurance up over 25% during that time. The average price of a 30-second commercial spot during the Super Bowl is $2.5 million, a seven percent increase from last year. 

No free ride anymore: The school bus fare for public school students in Hawaii will increase by 40%, or a dime, to 35¢ each ride on the first day of the second semester in January. Bus rides on Madison, Wisconsin's Metro line will now cost $1.25, up from $1.00. One of the biggest bus fare increases in Milwaukee County Transit System history takes effect this month. The new rate schedule, unveiled earlier this month, calls for raising the basic fare to $1.75 for adults who pay cash on the bus. If the County Board agrees, that would be a boost of 25 cents, or about 17%, from the current $1.50 fare.

Health care costs surged to record levels in 2003, outpacing economic growth for the fourth straight year. The United States actually spends more per person than any other developed nation. In fact, personal health insurance costs are up double digits in just the past two years. 

On a more comical note, you could buy 60 feet of coiled steel wire, commonly known as a Slinky in 1945, the year it was introduced, for $1.00. Today that same toy cost $1.97. The average cost of a wedding dress has gone up nearly 50% during the past ten years, to an average of $22,360. 

Theater chains raising price of ticket. Two major movie theater chains are adding 25 cents to the price of a movie ticket, pushing the cost of adult admission above the $10 mark for the first time. Loews Cineplex and United Artists began charging $10.25 for an adult ticket and $6.75 for a child's ticket in the past week. Loews defended the price increase, saying "it was fair considering the rising costs of other entertainment and the rate of inflation."

Some services are obviously experiencing much higher rates of inflation than are reflected in the CPI. The cost of home insurance, car insurance and childcare are all increasing by double digits, putting a crimp on consumers' pocket books. Higher average mortgage payments, increases in the cost of home heating oil, higher postal charges and increases in the cost of tobacco products and food are eroding our buying power and not truly being reflected in the often published inflation reports. By some estimates, the actual cost of basic services in our service economy is now increasing by over 11% annually.

Since World War II, there have only been two years in which inflation declined, with the average annual inflation rate for the past 50 years hovering around 4.0%. So to nobody's surprise, as prices rise each year, the value of everyone's dollar declines. Beneath the surface, inflation continues to march on, ever so quietly, rarely making headlines, as a static dollar falls further and further behind. 

Economists say the strengthening U.S. economy combined with a weaker dollar overseas is beginning to give companies a little more pricing power. Still, Federal Reserve Chairman Alan Greenspan, in a recent speech, said inflation remains subdued even as the dollar has fallen by roughly 25 percent against major foreign currencies and the budget deficit blossoms by a few trillion dollars.

Pure and simple, inflation is bad for the economy and our pocketbooks. It's the "real" things we buy and need in our daily lives that have risen two to three times faster than the CPI in the past twenty years. Unfortunately inflation has become an integral part of our economy and will continue to run rough shod through our everyday lives, continuing to take a big bite out of everybody's wallet. As a famous economist once stated so eloquently back in the early 1980s, "I guess you could say that with inflation, everything gets more valuable except money."