<p>In media the inflation number that you see is generally the <strong>Year-on-Year</strong> inflation rate, i.e.,</p>
<p><span class="math-container">$$\frac{I_t-I_{t-12}}{I_{t-12}}$$</span></p>
<p>where <span class="math-container">$I_t$</span> is the price <em>index</em> (CPI or WPI). For most countries, the index is a fixed base index. So the absolute value of the index gives you the idea of where the prices are relative to the base year.</p>
<p>Inflation rate on the other hand gives you idea of how much the index has increased as compared to same month previous year. The main reason for using YoY over MoM is to prevent seasonality misleading you.</p>
<p>For example, if media reported MoM, every December you'd see high inflation because of holiday season. So inflation of December is not strictly comparable with other months because of inherent seasonality. To prevent this YoY is used.</p>
<p>On your second point: No inflation does not keep decreasing with time. This would be true if price increases with a decreasing slope. There is no economic reason to believe that.</p>
<p>On third point: if we only looked at inflation rate from a historic point then that number would rather be an increasing number. Then again you would not be able to compare it with previous months' or years' numbers as then the difference of inflation would be of interest.</p>

CC BY-SA 4.0
2020-09-03T04:32:04.353Z
2020-09-03T04:32:04.353Z
Dayne
<p>Inflation is by definition change in average price level. If we denote price level as <span class="math-container">$P$</span> and inflation as <span class="math-container">$\pi$</span>, it is given by:</p>
<p><span class="math-container">$$\pi = \frac{P_t-P_{t-1}}{P_t}$$</span></p>
<p>Hence yes it is given relative to its previous time period as its growth rate.</p>
<p>You can look at inflation since any date you want since <span class="math-container">$t$</span> and <span class="math-container">$t-1$</span> can be any dates. However, the most relevant is the current rate of inflation as just from purely practical perspective for conducting business or policy its current or future expected rate of inflation that matters most since past is already past and people make economic decisions in present or plan for future.</p>

CC BY-SA 4.0
2020-09-02T01:00:44.020Z
2020-09-02T01:00:44.020Z
1muflon1
<p>The news usually says that inflation for a certain month is say <span class="math-container">$2.57\%$</span>.  It is never said relative to what.  Should I assume that is relative to the previous month?</p>
<p>If that's so, then the more inflation rises, the more likely the percentage reported will be small and eventually negative --- otherwise, inflation would be rising exponentially.</p>
<p>Wouldn't be more useful if we would look at inflation since the a certain historic mark?  In the US, for example, shouldn't we look every day how much money the dollar has lost its value since 1917 or 1971?</p>

CC BY-SA 4.0
2020-09-02T09:38:36.760Z
2.57% per month would be extremely high. More likely, it's 2.57%, compared to the same month one year ago.
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<inflation><economics-education>
What is meant by an inflation rate spoken in the typical news?
user12406990
# What is meant by an inflation rate spoken in the typical news?

(Asked by: username_0 on 2020-09-02)

The news usually says that inflation for a certain month is say $2.57\%$. It is never said relative to what. Should I assume that is relative to the previous month?

If that's so, then the more inflation rises, the more likely the percentage reported will be small and eventually negative --- otherwise, inflation would be rising exponentially.

Wouldn't be more useful if we would look at inflation since the a certain historic mark? In the US, for example, shouldn't we look every day how much money the dollar has lost its value since 1917 or 1971?

**Tags:** inflation, economics-education
> **Comments:**
> **username_1**: 2.57% per month would be extremely high. More likely, it's 2.57%, compared to the same month one year ago.  

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## 2 answers

### Answer by username_2 on 2020-09-03. Score: 5

In media the inflation number that you see is generally the **Year-on-Year** inflation rate, i.e.,

$$\frac{I\_t-I\_{t-12}}{I\_{t-12}}$$

where $I\_t$ is the price *index* (CPI or WPI). For most countries, the index is a fixed base index. So the absolute value of the index gives you the idea of where the prices are relative to the base year.

Inflation rate on the other hand gives you idea of how much the index has increased as compared to same month previous year. The main reason for using YoY over MoM is to prevent seasonality misleading you.

For example, if media reported MoM, every December you'd see high inflation because of holiday season. So inflation of December is not strictly comparable with other months because of inherent seasonality. To prevent this YoY is used.

On your second point: No inflation does not keep decreasing with time. This would be true if price increases with a decreasing slope. There is no economic reason to believe that.

On third point: if we only looked at inflation rate from a historic point then that number would rather be an increasing number. Then again you would not be able to compare it with previous months' or years' numbers as then the difference of inflation would be of interest.


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### Answer by username_3 on 2020-09-02. Score: 4

Inflation is by definition change in average price level. If we denote price level as $P$ and inflation as $\pi$, it is given by:

$$\pi = \frac{P\_t-P\_{t-1}}{P\_t}$$

Hence yes it is given relative to its previous time period as its growth rate.

You can look at inflation since any date you want since $t$ and $t-1$ can be any dates. However, the most relevant is the current rate of inflation as just from purely practical perspective for conducting business or policy its current or future expected rate of inflation that matters most since past is already past and people make economic decisions in present or plan for future.


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