Inflation and Inflation Indicies

MIT has taken a novel approach to calculating inflation by pulling prices of approximately 1/2 million items from online retailers.  The results are published as part of their Billion Prices Project (BPP)  @ http://bpp.mit.edu/usa .  Note that one would expect that the BPP index to lead the CPI (Consumer Price Index) due to the higher update frequency.

According to BPP, if you had $100 in 2010, that same $100 is worth about $93 today (about $95 according to CPI), which puts inflation at around 2.0% (1.6% based on CPI).  So while you still have $100 dollars (this is what economist refer to as the nominal value), what you can purchase with the $100 has declined (refer to as the real value).