WHEN YOU SAY INFLATION...

Inflation or INFLATION RATE is one of the most frequently used words today.

What is inflation? How can it be measured?
In general, inflation is the growth of price level over a certain period of time. As a statistical concept, inflation is based on measuring net changes in prices using consumer price indices (CPI). Price indices measure the price level of a selected basket containing representative products and services (about 790 items) in two compared periods. The weights of individual price representatives in the consumer basket correspond to the share of a given kind of consumption which they represent in total household consumption. The consumer basket comprises foodstuffs (food, beverages and tobacco), other goods (clothing, furniture, household utensils, miscellaneous chemist's and small articles, goods for transport and leisure, personal care goods, etc.) and services (in the areas of repair, housing, household running, health and social care, transport, leisure, education, catering and accommodation, personal care and financial services).

Inflation rate is a percentage increase in consumer price indices.

What is inflation rate used for?
Information on inflation rate is used e.g. for the purposes of valorising wages, pensions and social incomes. Last but not least, this information is used in connection with renting or other contracts, where the revision is laid down of originally agreed financial payments depending on inflation.

Which inflation rate is the "right" one?
In order to interpret every price index correctly, one should be aware of the period in question. Various numbers are often given, which, though different, are all correct. The precondition are accurate factual, spacial and time definitions. This means that the period for which inflation rate is indicated (the reference period) and, further, the base period which the reference period is compared with, should be mentioned unambiguously.
The following inflation rates are used most frequently:

1) Inflation rate as an increase in average annual CPI;

2) Inflation rate as an increase in CPI compared with the corresponding month of preceding year;

3) Inflation rate as an increase in CPI compared with preceding month;

4) Inflation rate as an increase in CPI compared with the base period (year 2000 = 100).

Are there any other price indices?
The Czech Statistical Office (CZSO) measures and publishes a number of other price indices: among them, the community at large uses most the following ones:

Price indices of construction work and structures;
Industrial producer price indices;
Agricultural producer price indices;
Price indices of market services in the enterprise sphere.

The growth of prices is compared to various price bases and various periods of time:

1) Average annual growth of prices as a change in last 12-month average over preceding 12-month average. (example)

2) Year-on-year monthly growth comparing price level in the reference month of a given year with price level in the corresponding month of preceding year. (example)

3) Month-on-month growth comparing price level in the reference month with that in preceding month. (example)

1) Inflation rate as an increase in average annual CPI indicates percentage change in last 12-month average over preceding 12-month average.

This inflation rate is appropriate for making adjustments or considerations of average quantities. It is taken into account particularly when real wages, pensions, etc., are calculated.

Year

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

10.0 9.1 8.8 8.5 10.7 2.1 3.9 4.7 1.8

2) Inflation rate as an increase in CPI compared with the corresponding month of preceding year indicates percentage change in price level between the reference month of a given year and the corresponding month of preceding year. This figure excludes seasonal variations, as always corresponding months are compared.

This inflation rate is appropriate in relation to state quantities which measure the change between the beginning and end of a period without any reference to the trend or state in the meantime. Taken into account when real interest rates, real increase in property value, valorisation, etc., are calculated.

Year Month

1 2 3 4 5 6 7 8 9 10 11 12

1997 7.4 7.3 6.8 6.7 6.3 6.8 9.4 9.9 10.3 10.2 10.1 10.0

1998 13.1 13.4 13.4 13.1 13.0 12.0 10.4 9.4 8.8 8.2 7.5 6.8

1999 3.5 2.8 2.5 2.5 2.4 2.2 1.1 1.4 1.2 1.4 1.9 2.5

2000 3.4 3.7 3.8 3.4 3.7 4.1 3.9 4.1 4.1 4.4 4.3 4.0

2001 4.2 4.0 4.1 4.6 5.0 5.5 5.9 5.5 4.7 4.4 4.2 4.1

2002 3.7 3.9 3.7 3.2 2.5 1.2 0.6 0.6 0.8 0.6 0.5 0.6

2003 -0.4 -0.4 -0.4 -0.1 0.0 0.3

3) Inflation rate as an increase in CPI compared with preceding month indicates percentage change in price level between the reference month and preceding month.

Year Month

1 2 3 4 5 6 7 8 9 10 11 12

1997 1.2 0.3 0.1 0.6 0.1 1.2 3.5 0.7 0.6 0.4 0.4 0.5

1998 4.0 0.6 0.1 0.3 0.1 0.3 1.9 -0.2 0.1 -0.2 -0.2 -0.2

1999 0.8 0.0 -0.2 0.3 -0.1 0.2 0.8 0.1 -0.1 0.0 0.2 0.5

2000 1.7 0.2 0.0 -0.1 0.2 0.6 0.6 0.2 0.0 0.3 0.1 0.2

2001 1.9 0.0 0.1 0.4 0.6 1.0 1.0 -0.2 -0.7 0.0 -0.1 0.1

2002 1.5 0.2 -0.1 -0.1 -0.1 -0.3 0.5 -0.2 -0.5 -0.3 -0.2 0.2

2003 0.6 0.2 -0.1 0.2 0.0 0.0

4) Inflation rate as an increase in CPI compared with the base period (year 2000 = 100) indicates change in price level between the reference month of a given year against 2000.

This inflation rate us used for the analysis of long-term detailed trends (time series) in price level and cost of living.

The basic CPIs to basic period (December 1999=100) provide the base for calculating all the CPIs to give inflation rates in various periods of time. There is a principle for these calculations that inflation rates amount to aggregate CPI for households in total.

Month Year

1997 1998 1999 2000 2001 2002 2003

1. 81.7 92.4 95.6 98.9 103.1 106.9 106.5

2. 82.0 93.0 95.6 99.1 103.1 107.1 106.7

3. 82.1 93.1 95.5 99.1 103.2 107.0 106.6

4. 82.6 93.4 95.7 99.0 103.6 106.9 106.8

5. 82.7 93.5 95.7 99.2 104.2 106.8 106.8

6. 83.7 93.8 95.8 99.8 105.2 106.5 106.8

7. 86.6 95.5 96.6 100.4 106.3 107.0

8. 87.2 95.3 96.7 100.6 106.1 106.8

9. 87.8 95.4 96.6 100.6 105.3 106.2

10. 88.1 95.3 96.7 100.9 105.3 105.9

11. 88.4 95.0 96.9 101.0 105.2 105.7

12. 88.9 94.8 97.3 101.2 105.3 105.9

Annual average 85.2 94.2 96.2 100.0 104.7 106.6

Examples:

Add 1)

Year Price increase (%)

Industrial producers Construction work

1994 5.3 13.9

1995 7.6 10.6

1996 4.8 11.3

1997 4.9 11.3

1998 4.9 9.3

1999 1.0 4.8

2000 4.9 4.0

2001 2.9 4.0

2002 -0.5 2.7

2003

Price increase in selected items of other business services (%)

Year

Code Service title 1997 1998 1999 2000 2001 2002 2003

702 Renting own real estate 10.3 2.3 0.5 -6.7 -2.2 6.4

70201 - Office -5.9 18.6 17.2 -7.1 -2.1 0.4

70202 - Shop -2.4 -4.2 -8.4 -5.2 3.1 7.9

70203 - Store, hall, garage 34.1 0.3 0.4 -8.3 -5.7 13.4

70204 - Fenced area 12.5 15.2 -1.5 0.6 -3.0 -0.8

Add 2)

Year-on-year monthly price increase among industrial producers (%)
(corresponding period of preceding year = 100)

Year Month

1 2 3 4 5 6 7 8 9 10 11 12

1997 4.5 4.2 4.3 4.3 4.1 4.5 5.1 5.7 5.8 5.6 5.5 5.7

1998 6.1 6.6 6.5 6.2 6.2 5.6 5.2 4.2 3.7 3.3 2.8 2.2

1999 0.8 -0.1 0.0 0.2 0.4 0.4 0.5 1.2 1.2 1.8 2.4 3.4

2000 4.2 4.5 5.1 4.2 4.4 5.1 5.0 4.8 5.4 5.9 5.9 5.0

2001 4.2 4.7 4.1 4.0 3.8 3.4 3.0 2.4 1.8 1.3 0.9 0.8

2002 0.6 -0.1 -0.2 -0.1 -0.5 -0.8 -1.1 -0.9 -0.9 -0.9 -0.7 -0.7

2003 -0.8 -0.7 -0.4 -0.7 -0.8

Year-on-year monthly price increase in construction work (%)¹⁾
(corresponding period of preceding year = 100)

Year Month

1 2 3 4 5 6 7 8 9 10 11 12

1997 10.4 10.5 11.1 11.1 11.1 11.3 11.4 11.6 11.4 11.4 11.4 11.6

1998 11.7 11.5 10.7 10.3 10.2 9.7 9.1 8.7 8.4 8.1 7.5 7.0

1999 6.3 5.9 6.0 5.6 5.0 4.8 4.6 4.2 4.1 3.8 3.7 3.5

2000 3.5 3.4 3.3 3.6 3.8 4.1 4.2 4.2 4.3 4.5 4.6 4.8

2001 4.7 4.7 4.6 4.3 4.2 4.1 4.0 3.9 3.8 3.6 3.6 3.4

2002 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.6 2.4 2.3 2.2 2.1

2003 1.9 1.8 1.9 2.2 2.2

1) ) The estimates of monthly price trends are always retroactively updated on the 45th day after a given quarter using the results of quarterly survey on construction prices.

Add 3)

Month-on-month price increase among industrial producers (%)
(preceding month = 100)

Year Month

1 2 3 4 5 6 7 8 9 10 11 12

1997 1.4 0.5 0.2 0.3 0.1 0.5 0.7 0.7 0.4 0.4 0.2 0.2

1998 1.8 0.9 0.1 0.1 0.1 -0.1 0.3 -0.2 0.0 0.0 -0.4 -0.4

1999 0.4 0.1 0.2 0.3 0.2 -0.1 0.4 0.5 0.0 0.7 0.2 0.6

2000 1.1 0.4 0.7 -0.5 0.4 0.6 0.3 0.3 0.6 1.2 0.1 -0.2

2001 0.4 0.9 0.1 -0.6 0.2 0.2 -0.1 -0.3 0.0 0.7 -0.4 -0.3

2002 0.2 0.2 0.0 -0.5 -0.2 -0.1 -0.5 -0.1 0.0 0.7 -0.1 -0.3

2003 0.0 0.4 0.3 -0.8 -0.3

Month-on-month price increase in construction work (%)¹⁾
(preceding month = 100)

Year Month

1 2 3 4 5 6 7 8 9 10 11 12

1997 1.5 1.1 1.1 1.0 0.9 0.8 1.0 1.0 0.7 0.7 0.6 0.7

1998 1.3 0.9 0.3 0.7 0.8 0.4 0.5 0.6 0.4 0.4 0.3 0.2

1999 0.6 0.5 0.5 0.3 0.2 0.1 0.3 0.3 0.3 0.2 0.2 0.1

2000 0.6 0.4 0.4 0.5 0.4 0.4 0.4 0.3 0.4 0.4 0.3 0.3

2001 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3 0.2 0.1

2002 0.4 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.2 0.1 0.0

2003 0.2 0.2 0.3 0.2 0.2

1) The estimates of monthly price trends are always retroactively updated on the 45th day after a given quarter using the results of quarterly survey on construction prices.

� Czech Statistical Office, 2001