The Record When we compute price indices to measure inflation, we have to deal with some of the same problems that arise in measuring national production. This should be no surprise -- one of the problems in measuring national production is to adjust for inflation, and the problems in adjusting for it are the problems in measuring it. There are no natural units for the price level. We can only compare the price level in one period with that in another. Once again, as in the previous chapter, the solution is to choose a base period, and measure the purchasing power of money in any other year against that in the base period. For the current consumer price index, the base period would be 1982-84. The year we compare to the base year is called the "current" year. That doesn't mean this year: if we compare 1959 with 1982-84, 1959 is the "current" year. If we compare 1996 with 1982-84, 1996 is the "current" year. (The source of this information is the Bureau of Labor Statistics, and the date is 5-31-96).
Let us take the "cost of living" or consumer price index as an example. The Consumer price Index for May, 1996 would tell us the cost, in 1996 prices, of buying the basket of goods an average city wage-earner bought in 1982-84. Thus, if the CPI for May, 1996 is 157, it means that the same goods that an average wage-earner bought in 1982-4 for $1 would now cost $1.57 -- or in other words, there has been 57% inflation of the price level between 1983 and 1996.
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