How is inflation actually measured?
By pricing a fixed basket of goods and services repeatedly and tracking how much it costs over time. The apparent simplicity hides a series of judgement calls, each of which materially affects the number.
The method:
Define a basket representing typical household spending, with each item weighted by how much of total spending it represents. Housing and food carry far more weight than, say, cinema tickets.
Collect prices — hundreds of thousands of them monthly, from shops, websites and administrative sources.
Compute the index, then express it as the percentage change from twelve months earlier.
The judgement calls that matter:
Basket composition is revised annually, adding and removing items as habits change — the additions each year are reported as a curiosity and are genuinely a methodological necessity.
Quality adjustment. If a laptop costs the same but is twice as fast, has the price risen, fallen or stayed the same? Statisticians apply hedonic adjustment to separate quality change from price change. It is defensible and it is also the most criticised element, since it can reduce measured inflation.
Substitution. If beef becomes expensive and people buy chicken, a fixed basket overstates the cost of living. Some indices allow for substitution; others deliberately do not.
Housing, the biggest divergence between measures — whether to include mortgage interest, rents, or an imputed rent for owner-occupiers changes the headline substantially, which is why countries publish several indices.
Why your inflation differs from the published figure. The index describes an average household. If you rent, drive a lot, have children or heat a poorly insulated home, your personal basket differs from the national one — and in periods when energy and food move sharply, lower-income households typically experience higher inflation because those items are a larger share of their spending.
Core inflation strips out food and energy — not because they do not matter, but because they are volatile and obscure the underlying trend policymakers respond to.
General information.