Title: Measuring Inflation. The most commonly cited measure of inflation is the Consumer Price Index, CPI. CPI is based on a basket of goods representing what the typical consumer buys. Several price indices are not based on baskets of consumer goods. The GDP deflator is based on all GDP components. The Producer Price Index is based on prices of supplies and inputs bought by producers of goods and services. An Employment Cost Index measures wage inflation in the labor market. An International Price Index is based on the prices of merchandise that is exported or imported.

The most commonly cited measure of inflation around the world is the Consumer Price Index (CPI). This is the type of inflation that is most relevant to consumers. CPI is mostly based on the prices in a fixed basket of goods and services that represents the purchases of the average family of four. However, the content of this basket changes over time.
Of the eight categories used to generate the Consumer Price Index in the US, housing is the highest at 42.7%. The next highest category, food and beverage at 15.3%, is less than half the size of housing. Next is transportation, 14.6%, followed by medical care, 7.9%, education and communication, 7.1%, and recreation, 5.7%. Other goods and services, and apparel, are the lowest at 3.4% and 3.3%, respectively.
Core Inflation. Economists typically calculate a core inflation index by taking the CPI and excluding volatile economic variables. In this way, economists have a better sense of the underlying trends in prices that affect the cost of living. Examples of excluded variables include energy and food prices, which can jump around from month to month because of the weather.
Producer Price Index, PPI. PPI is based on prices paid for supplies and inputs by producers of goods and services. We can break it down into price indices for different industries, commodities, and stages of processing (like finished goods, intermediate goods, or crude materials for further processing). There is an International Price Index based on the prices of merchandise that is exported or imported. An Employment Cost Index measures wage inflation in the labor market. The GDP deflator, which the Bureau of Economic Analysis measures, is a price index that includes all the GDP components. Unlike the CPI, its baskets are not fixed. GDP Deflator basket is recalculated to measure the GDP using the base-year’s prices.
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