Consumer price indices have a long history in official statistics. They measure the erosion of living standards through price inflation and are probably one of the best known economic statistics used by the media and general public.

A variety of price indices may be used to measure inflation in an economy. These include consumer price indices (CPI), price indices relating to specific goods and/or services, GDP deflators and producer price indices (PPI). Whereas CPIs are designed to measure changes over time in average retail prices of a fixed basket of goods and services taken as representing the consumption habits of households, PPIs aim to provide measures of average movements of prices received by the producers of various commodities. They are often seen as advanced indicators of price changes throughout the economy, including changes in the prices of consumer goods and services.

Labour compensation per unit labour input shows the average compensation received by employees in the economy. This item is closely linked with other competitiveness indicators, e.g. unit labour costs, shown elsewhere in this publication.

Long-term interest rates are one of the determinants of business investment. Low long-term interest rates encourage investment in new equipment and high interest rates discourage it. Investment is, in turn, a major source of economic growth.

To compare a single country’s real GDP over a period of years, it is necessary to remove movements that are due to price changes. In the same way, in order to compare the real GDPs of a group of countries at a single point in time, it is necessary to remove any differences in their GDPs that are due to differences in their price levels. Price indices are used to remove the effects of price changes in a single country over time; purchasing power parities (PPPs) are used to remove the effects of the different levels of prices within a group of countries at a point in time.

Effective exchange rates are a summary measure of the changes in the exchange rates of a country vis-à-vis its trading partners. This section shows two indicators of real effective exchange rates, namely changes in either consumer good prices or unit labour costs in manufacturing of a given country relative to those of its competitors. These indicators provide a broad interpretation of a country’s price competitiveness. This competitiveness is, in turn, a major determinant of the success of different countries in raising productivity, fostering innovation and improving living standards.