4-5 general inflation rate versus specific inflation rate

4-5  conclusionGeneral inflation rate versus specific inflation rate

When we use the CPI as a base to determine the average inflation rate, we obtain the general inflation rate. We need to distinguish carefully between the general inflation rate and the average inflation rate for specific goods

General inflation rate: this average inflation rate is calculated on the basis of the CPI for all items in the market basket. The market interest rate is expected to respond to this general inflation rate

Specific inflation rate: this rate is based on an index specific of the economy. For example, we must often estimate the future cost of a particular item. When we refer to the average inflation rate for just one item, we will drop the subscript for simplicity.