1. INFLATION
PRESENTED BY ELIZABET STEFANOVA

2. • 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.

3. WHAT IS INFLATION?
In economics, inflation is a rise in the general level of
prices of goods and services in an economy over a
period of time.

4. WHAT CAUSES INFLATION?
There are many causes for inflation, depending on a
number 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.

5. DEMAND-PULL INFLATION
This type of inflation is a result of strong consumer
demand. When many individuals are trying to
purchase the same good, the price will inevitably
increase.

6. COST-PULL INFLATION
Cost-push inflation develops because the higher
costs of production factors decrease in aggregate
supply in the economy. Because there are fewer
goods being produced and demand for these goods
remains consistent, the prices of finished goods
increase (inflation).

7. HOW INFLATION CAN BE MEASURED?
There are several ways to measure inflation. However,
the most popular way to measure inflation is through
the consumer price index (CPI).
Inflation rate = (CPIYear 2 - CPIYear1) x 100%
CPIYear1

8. WHAT ARE THE EFFECTS OF
INFLATION?
Inflation's effects on an economy are various and
can 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

9. IS INFLATION HARMFUL?
Inflation is very harmful to any economy because it
can ruin the economy's development and growth
and this is not supposed to be. Inflation is also very
harmful to any economy because the people living
in that economy might not survive the situation and
this is when you see that an economy is affected and
if nothing is done to it, it can cause an economy to
collapse.

10. WHAT IS BASKET OF GOODS?
This is a relatively fixed set of consumer products and
services valued and used on an annual basis to track
inflation in a specific market or country. The goods in
the basket are often adjusted periodically to
account for changes in consumer habits. The basket
of goods is used primarily to calculate the Consumer
Price Index (CPI). Moreover, a basket of goods can
give you a real sense of how society is changing.

11. THE INFLATION BASKET OF GOODS 2012
Inflation basket of goods
Photograph: Guardian
www.guardian.co.uk

12. THANK YOU VERY MUCH FOR
LISTENING
Any questions?