Inflation

Inflation

The rise in the general level of prices, sustained overtime
HyperInflcation
1. Zimbabwe
  1. 2008
  2. inflation reached 150 000%
2. where costs of inflation are felt most
Demand Pull
1. Factor that causes inflation
2. too much many chasing too few goods
  1. increase in aggregate demand
  2. e.g. larger population demands more food, there is not enough so prices go up
3. Triggered by consumers
Cost Push
1. when it becomes too expensive for firms to supply their goods and services
  1. can be caued by an increase in price of raw materials
2. Factor that causes inflation
3. Triggered by suppliers
Deflation
1. Decreasing nominal prices for goods and services
CPI
1. Consumer Price Index
2. measure of general level of prices in the UK
3. changes in CPI measure inflation
4. index number
  1. shown as a percentage relative to the base year, value of 100
  2. 1996
5. 'basket of goods'
  1. 650 goods and services
  2. prices are collected monthly
    1. from 7,000 households
    2. and compared with that of a year ago
  3. goods are weighted
    1. weights show the proportion of income spent on each item
      1. reflects spending habits of UK
  4. updated regularly to reflect spending habits of UK
    1. if demand for a product goes up or down the survey will pick it up
      1. either being included or excluded from the basket
    2. e.g. in 2013
      1. champagne re[laced by white rum
    3. due to technology updates
      1. e.g new phones
6. doesn't include mortgages or rents
7. sceptical?
  1. 7,000 households not enough to represent whole population
  2. doesn't include top and bottom 4% of earners
  3. doesn't include pensioners
  4. Doesn't reflect unusual spending habits
RPI
1. alternative measure of inflation
  1. older
2. retail price index
3. a measure of the average prices in the UK
4. Includes housing costs
Interest rates
1. raised in a measure to reduce rate of inflation
2. if they are cut, it is a sign that inflation is not a threat
3. cost of borrowing
4. rewards of saving
UK inflation
1. Target of 2%
  1. achievement of this target is down to Monetary Policy Commitee
    1. meet monthly and set base rate of interest rate
    2. they fail if inflation is
      1. above 3%
      2. below 1%
  2. for stability and control
  3. protects savers
  4. competitive
  5. protects trade
Impacts
1. prices are forced up rapidly
  1. but wages are not
2. people can't afford as much
3. decreased trade
  1. countries don't want to trade if your currency is worthless
4. benefits those in debt
  1. becomes worthless
5. bad for savers
  1. become worthless

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	Created by juliasutton over 9 years ago