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  2. 2.  Every one is familiar with the term inflation as rising prices. This means the same thing as fall in the value of money. Inflation is a monetary aliment in an economy and it is defines by economists is so many ways.
  3. 3.  According to COULBOURN defines it as,”too much money chasing too few goods”. Keynes definition ,”inflation refers to a rise in the price level after full employment is reached”.
  4. 4.  Creeping inflation Walking inflation Running inflation Galloping inflation or hyper inflation
  5. 5. There are different Price Indices that can be used, the most popular are: Consumer Price Index (CPI) – measure the price of a selection of goods and services for a typical consumer. Commodity Price Index – measure the price of a selection of commodities with. It is a weighted index (in other words, some commodities are more important than others in determining price changes). Cost of Living Index (COLI) – measure the cost to maintain a constant standard of living. In other words, what would it cost you from year to year to live exactly the same. Producer Price Index (PPI) – measures the prices for all goods and services at the wholesale level. It is like the consumer price index but it is measuring the prices the producers have to pay. GDP Deflator – measures the prices of all goods and services (GDP).
  6. 6. Now in order to calculate the inflation between any 2 years we simply calculate the percentage rate change. To calculate a percentage rate change the formula is:where F is the final value and I is the initial value.
  7. 7.  Inflation rate from 2011 to 2012: In this case the Final value is the index value for 2012 which is 137. The initial value is the index value for 2011. Therefore we plug in the values into the percentage rate change formula to get: this gives an inflation rate of july (15 days) approximately 3%.
  8. 8. A variety of policies have been used to control inflation. Monetary policy Fixed exchange rates Gold standard Wage and price controls Cost-of-living allowance