"inflation"
The term "inflation" usually refers to a measured rise in a broad
price index that represents the overall level of prices in goods and
services in the economy. The Consumer Price Index(CPI), the Personal
Consumption Expenditures Price Index (PCEPI) and the GDP deflator are
some examples of broad price indices.
The term inflation may also be used to describe the rising level of
prices in a narrow set of assets, goods or services within the economy,
such as commodities (which include food, fuel, metals), financial
assets (such as stocks, bonds and real estate), and services (such
as entertainment and health care).
The Reuters-CRB Index (CCI), the Producer Price Index, and Employment
Cost Index (ECI) are examples of narrow price indices used to measure
price inflation in particular sectors of the economy. Asset price
inflation is a rise in the price of assets, as opposed to goods and
services.
Core inflation is a measure of price fluctuations in a sub-set of
the broad price index which excludes food and energy prices.
The Federal Reserve Board uses the core inflation rate to measure
overall inflation, eliminating food and energy prices to mitigate
against short term price fluctuations that could distort estimates
of future long term inflation trends in the general economy.
Other related economic concepts include:
Deflation – a fall in the general price level
Disinflation – a decrease in the rate of inflation
Hyperinflation – an out-of-control inflationary spiral
Stagflation – a combination of inflation, slow economic growth and high unemployment
reflation – an attempt to raise the general level of prices to counteract deflationary pressures.
Measures
Inflation is usually estimated by calculating the inflation rate of
a price index, usually the Consumer Price Index. The Consumer Price
Index measures prices of a selection of goods and services purchased
by a "typical consumer" The inflation rate is the percentage rate of
change of a price index over time.
For example, in January 2007, the U.S. Consumer Price Index was 202.416,
and in January 2008 it was 211.080. The formula for calculating the
annual percentage rate inflation in the CPI over the course of 2007 is
The resulting inflation rate for the CPI in this one year period is 4.28%,
meaning the general level of prices for typical U.S. consumers rose
by approximately four percent in 2007.
If P0 is the current average price level and P − 1 is the price level
a year ago, the rate of inflation during the year might be measured
as follows:
After the year the purchasing power of a unit of money is multiplied
by a factor 1 / ( 1 + inflation rate ).
There are other ways of defining the inflation rate, such as logP0 − logP − 1 (using the natural log),
again stated as a percentage. In this case after the year the purchasing
power of a unit of money is multiplied by a factor e − inflation rate.
There are two general methods for calculating inflation rates - one
is to use a base period, the other is to use "chained" measurements.
Chained measurements adjust not only the prices, but the contents of
the market basket involved, with each price period. More common, however,
is the base period reference. This can be seen from inflation reports
from the "relative weight" assigned to each component, and by looking
at the technical notes to see what each item in an inflation basket represents
and how it is calculated.
Cash flow
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The cash flow statement was previously known as the statement of
changes in financial position or flow of funds statement.
The cash flow statement reflects a firm's liquidity or solvency
The balance sheet is a snapshot of a firm's financial resources and
obligations at a single point in time, and the income statement
summarizes a firm's financial transactions over an interval of time.
These two financial statements reflect the accrual basis accounting
used by firms to match revenues with the expenses associated with
generating those revenues. The cash flow statement includes only
inflows and outflows of cash and cash equivalents; it excludes transactions
that do not directly affect cash receipts and payments. These noncash
transactions include depreciation or write-offs on bad debts to name a few.
The cash flow statement is a cash basis report on three types of financial activities:
operating activities
investing activities
financing activities
Noncash activities are usually reported in footnotes.
The cash flow statement is intended to :
provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
provide additional information for evaluating changes in assets, liabilities and equity
improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
indicate the amount, timing and probability of future cash flows
The term "inflation" usually refers to a measured rise in a broad
price index that represents the overall level of prices in goods and
services in the economy. The Consumer Price Index(CPI), the Personal
Consumption Expenditures Price Index (PCEPI) and the GDP deflator are
some examples of broad price indices.
The term inflation may also be used to describe the rising level of
prices in a narrow set of assets, goods or services within the economy,
such as commodities (which include food, fuel, metals), financial
assets (such as stocks, bonds and real estate), and services (such
as entertainment and health care).
The Reuters-CRB Index (CCI), the Producer Price Index, and Employment
Cost Index (ECI) are examples of narrow price indices used to measure
price inflation in particular sectors of the economy. Asset price
inflation is a rise in the price of assets, as opposed to goods and
services.
Core inflation is a measure of price fluctuations in a sub-set of
the broad price index which excludes food and energy prices.
The Federal Reserve Board uses the core inflation rate to measure
overall inflation, eliminating food and energy prices to mitigate
against short term price fluctuations that could distort estimates
of future long term inflation trends in the general economy.
Other related economic concepts include:
Deflation – a fall in the general price level
Disinflation – a decrease in the rate of inflation
Hyperinflation – an out-of-control inflationary spiral
Stagflation – a combination of inflation, slow economic growth and high unemployment
reflation – an attempt to raise the general level of prices to counteract deflationary pressures.
Measures
Inflation is usually estimated by calculating the inflation rate of
a price index, usually the Consumer Price Index. The Consumer Price
Index measures prices of a selection of goods and services purchased
by a "typical consumer" The inflation rate is the percentage rate of
change of a price index over time.
For example, in January 2007, the U.S. Consumer Price Index was 202.416,
and in January 2008 it was 211.080. The formula for calculating the
annual percentage rate inflation in the CPI over the course of 2007 is
The resulting inflation rate for the CPI in this one year period is 4.28%,
meaning the general level of prices for typical U.S. consumers rose
by approximately four percent in 2007.
If P0 is the current average price level and P − 1 is the price level
a year ago, the rate of inflation during the year might be measured
as follows:
After the year the purchasing power of a unit of money is multiplied
by a factor 1 / ( 1 + inflation rate ).
There are other ways of defining the inflation rate, such as logP0 − logP − 1 (using the natural log),
again stated as a percentage. In this case after the year the purchasing
power of a unit of money is multiplied by a factor e − inflation rate.
There are two general methods for calculating inflation rates - one
is to use a base period, the other is to use "chained" measurements.
Chained measurements adjust not only the prices, but the contents of
the market basket involved, with each price period. More common, however,
is the base period reference. This can be seen from inflation reports
from the "relative weight" assigned to each component, and by looking
at the technical notes to see what each item in an inflation basket represents
and how it is calculated.
Cash flow
[You must be registered and logged in to see this link.]
The cash flow statement was previously known as the statement of
changes in financial position or flow of funds statement.
The cash flow statement reflects a firm's liquidity or solvency
The balance sheet is a snapshot of a firm's financial resources and
obligations at a single point in time, and the income statement
summarizes a firm's financial transactions over an interval of time.
These two financial statements reflect the accrual basis accounting
used by firms to match revenues with the expenses associated with
generating those revenues. The cash flow statement includes only
inflows and outflows of cash and cash equivalents; it excludes transactions
that do not directly affect cash receipts and payments. These noncash
transactions include depreciation or write-offs on bad debts to name a few.
The cash flow statement is a cash basis report on three types of financial activities:
operating activities
investing activities
financing activities
Noncash activities are usually reported in footnotes.
The cash flow statement is intended to :
provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
provide additional information for evaluating changes in assets, liabilities and equity
improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
indicate the amount, timing and probability of future cash flows