CPI, PPI, and IPD
These are three common ways to measure inflation.
CPI (Customer Price Index) is a measure of the average level of prices of a fixed "market basket" of goods and services purchased by consumers (food, clothing, utilities etc.). CPI is an indicator of inflation on the retail level from consumer's perspective.
Alternatively, PPI (Producer Price Index) measures the average change over time in the selling prices received by domestic producers of goods and services. PPI's measure price change from the perspective of the seller. This varies from CPI this is a measure of price change from the buyer’s perspective.
The economy, however consists of a bit more than these packages on which CPI or PPI are measured. A broader index of inflation based on general economic activity is the GDP Implicit Price Deflator (IPD). The IPD is based on the Gross Domestic Product and therefore reflects price changes in all goods and services transactions in the United States, including the consumer, producer, investment, government and international sectors. It takes consideration for the price changes of the goods and services that actually happened. So it is normally the index used to adjust the cost of a long term projects such as capital projects.
For more information:
http://www.comparelenders.com/news/lepre/its_inflation_122006.asp
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~Mackenzie~
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