In Chapter 6 we learned about price indexes. Suppose you work for an employer who offers to give you a "cost of living" raise each year based on how much prices have changed over the past year. You boss will let you pick the price index to use in determining the rate of inflation over the year. Now we'll see how different price indexes have recently behaved.

Click to load the data for the CPI, PPI, and GDPPI.

Questions

1. For each price index, calculate the rate of inflation over the past year by calculating the percentage change in the index by finding the value for the last month listed for each along with the value for the same month 1 year earlier. For instance, if the last month listed is September 2001, then calculate the percentage change from September 2000 to September 2001 [this is found as (2001 value ? 2000 value)/2000 value].
2. Based on your findings in part 1, which price index would you like to use in determining your "cost of living" raise?
3. Do you think that the same price index chosen in part 2 would always be the best choice for determining any future raises? Why or why not?