4.1 Measuring inflation

Inflation or the decrease in the value of money (= the increase in price levels) can be measured using various different indices. Inflation and deflation have been defined earlier under 2.2 The development of the cost-of-living index. From the point of view of private households, the best option is the consumer price index. From the point of view of goods producers or importers, the producer price index is a better choice. As for building construction and housing, on the other hand, the building cost index and the housing cost index provide the most accurate picture of price trends in these industries.

Inflation in general terms is understood as referring to the 12-month percentage change in the consumer price index. EU members have agreed under the Maastricht Treaty that for purposes of EMU regulations, inflation shall be measured on the basis of the 12-month percentage change in the harmonised consumer price index. The Figure below shows the 12-month changes in the harmonised consumer price index in 1998-2003 for Finland and for the whole EMU area.