• what is inflation, what causes inflation, how is inflation measured, what are the effects of inflation, and is inflation harmful;• the inflation basket of goods 2012;• questions.
WHAT IS INFLATION?In economics, inflation is a rise in the general level ofprices of goods and services in an economy over aperiod of time.
WHAT CAUSES INFLATION?There are many causes for inflation, depending on anumber of factors:• an increase in expenditure that exceeds production capacity;• an increase in wage costs;• an increase in the price of raw materials and semi- furnished products;• government measures relating to VAT, excise and prices of government services;• an increase in profit and capital costs.
DEMAND-PULL INFLATIONThis type of inflation is a result of strong consumerdemand. When many individuals are trying topurchase the same good, the price will inevitablyincrease.
COST-PULL INFLATIONCost-push inflation develops because the highercosts of production factors decrease in aggregatesupply in the economy. Because there are fewergoods being produced and demand for these goodsremains consistent, the prices of finished goodsincrease (inflation).
HOW INFLATION CAN BE MEASURED?There are several ways to measure inflation. However,the most popular way to measure inflation is throughthe consumer price index (CPI).Inflation rate = (CPIYear 2 - CPIYear1) x 100% CPIYear1
WHAT ARE THE EFFECTS OFINFLATION?Inflations effects on an economy are various andcan be simultaneously positive and negative.- Negative effects of inflation● an increase in the opportunity cost of holding money● discourage investments and savings- Positive effects of inflation● encourage investments in non-monetary capital projects● ensuring that central banks can adjust real interest rates
IS INFLATION HARMFUL?Inflation is very harmful to any economy because itcan ruin the economys development and growthand this is not supposed to be. Inflation is also veryharmful to any economy because the people livingin that economy might not survive the situation andthis is when you see that an economy is affected andif nothing is done to it, it can cause an economy tocollapse.
WHAT IS BASKET OF GOODS?This is a relatively fixed set of consumer products andservices valued and used on an annual basis to trackinflation in a specific market or country. The goods inthe basket are often adjusted periodically toaccount for changes in consumer habits. The basketof goods is used primarily to calculate the ConsumerPrice Index (CPI). Moreover, a basket of goods cangive you a real sense of how society is changing.
THE INFLATION BASKET OF GOODS 2012 Inflation basket of goods Photograph: Guardian www.guardian.co.uk
THANK YOU VERY MUCH FOR LISTENINGAny questions?