Inflation

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Inflation
EdExcel AS Economics 2.1.2

Introduction to Inflation
Inflation is a sustained increase in the cost of living or the general
price level leading to a ...

Inflation – Some Key Terms
Consumer Price Index (CPI)
A measure of the price level in the economy based on
the prices of a...

CPI: How is the Rate of Inflation Calculated?
• Inflation in the UK is measured by the consumer prices index (CPI)
• A bas...

Weights in the Consumer Prices Index (2013)
Brought into CPI in 2013
• White rum
• Continental meats
• E-readers
• Daily d...

Category in the CPI Weights
CPI in June
2014
CPI in June 2015
Food and non-alcoholic beverages 110 143.2 140.1
Alcoholic b...

Limitations of the CPI as a measure of inflation
Few households are average – the published figure for inflation is
rarely...

The UK Consumer Price Index (CPI) from 2000-2015
93.1 94.2 95.4 96.7 98
100
102.3
104.7
108.5
110.8
114.5
119.6
123
126.1
...

0.8%
1.2% 1.3% 1.4% 1.3%
2.1%
2.3% 2.3%
3.6%
2.2%
3.3%
4.5%
2.8%
2.6%
1.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4....

CPI Inflation in the UK over the last 20 Years
The inflation rate for goods such as clothing and computing equipment has b...

UK Inflation Rates in Recent Years
Year
UK Consumer
Price Inflation
UK Whole
Economy
Average
Earnings
Halifax House
Price ...

What are the Main Causes of Inflation?
Demand Pull inflation
• Caused by excess aggregate demand
• Often linked to a money...

Some factors affecting inflationary pressures
Rising property
prices
Increased
consumer wealth
Demand pull
inflation risk
...

Cost-Push Inflation using AD-AS Diagram
GPL
Real GDP
GPL1
AS1
Y1
AD
AS2
Y2
GPL2
Cost-push inflation occurs
when firms resp...

Demand Pull Inflation using AD-AS Diagram
GPL
Real GDP
GPL2
AS
Y2
AD2AD1
Y1
GPL1
1. Demand-pull inflation
occurs when AD g...

Analysis: Internal and External Causes of Inflation
A large surge in
property prices
Higher wages /
labour costs
Boom in c...

Countries with Highest Inflation in 2015
96.8%
33.48%
28.98%
22.08%
19.03%
18.65%
17.94%
17.31%
16.5%
13.07%
12.85%
12.26%...

Why is High Inflation an Economic Problem?
Many governments target a low but positive rate of inflation. They
believe pers...

Possible Winners and Losers from High Inflation
One of the effects of inflation is that it can lead to arbitrary changes
i...

Why is inflation difficult to forecast accurately?
Forecast inflation for UK (source: BoE)
The chart shows the UK CPI infl...

Macroeconomic Policies to Control Inflation
Inflation can be reduced by policies that (i) slow down the growth
of AD or (i...

Inflation
EdExcel AS Economics 2.1.2

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