Obviously the CPI is flawed as a way to measure inflation becauses prices in general should steadily fall as time progresses (if inflation is taken ino account). So then, how else can it be done? Murray Rothbard went through a rigorous analysis to show that there was massive inflation in the 1920s; is there a simple way?
Why would prices fall with inflation? I think there are different definitions of inflation, but the one I am familiar with from Austrian economics is inflation=more money. So with more money prices go up for there’s more money around and less of the products comparatively if it is inflation. Admittedly I am not very proficient with the economic aspects of the free market yet.
In Austrian Economics, inflation means an increase in the money supply, whereas in common use (such as in news stories) inflation will generally refer to a rise in prices. To track increases in the money supply, there are different definitions such as the M1, M2, MZM and so on. To track increases in prices, there are different price indexes such as CPI, PPI, etc. This distinction, however, is kinda superficial, as increases in the money supply correlate extremely closely with increase in the price indexes. The theory behind this is, with an increase in the supply for money, but no increase in demand, the value (price) of each individual unit of money (dollar) decreases, resulting in higher prices (more dollars being necessary to purchase a given good of the same value).
If you go to the web site of the St. Louis Federal Reserve Bank, they have a ton of research materials in their Economic Research section where you can familiarize yourself with the different money supply and price index definitions, and track their growth.
The Rev
Inflation usually leads to an increase in prices, but sometimes can lead to steady prices if prices are set to fall greatly (like in the 1920s).
And yes, there is a correlation between CPI and inflation, but it is not a perfect correlation as prices are influenced by other factors. This is why I was thinking more of indicators that measure the amount of money are a more reliable measure of inflation.