Understanding of economic inflation

Determine the inflation rate is in the general price level continued to rise. This means that, in life and the people need more money to purchase the same goods would be increased costs.

How is a measure of inflation?

In order to measure inflation, government price surveys and investigations to find out, a typical shopping basket.

The first thing to do government, if inflation, a typical basket of goods measured was found. ThisBe able to share the goods, depending on their influence. For example, 12%, the total cost of gasoline account for the basket. Spending on clothing, 7% and 1% of mineral water costs. Which, of course, if gasoline prices rise, it will be even more important is the mineral water.

Every month, the Government will review the prices. The number of price changes will mulitiplied by commodity. These can be in the price index, the example in the UK will be convertedConsumer Price Index CPI is to use.

Problems in measuring inflation,

1. The quality of the product may change. As the price of mobile phones, but this may be due to inflation which can improve the function of the mirror.

2. Some consumers have different effective rates of inflation. Consumers who smoke will be done through raising the price of cigarettes. Old people in the family who live under the cold, more exposed to energy price increases. Young people can benefit fromConsumer prices

Questions / inflation costs - Why inflation is bad?

Prices on the economy created uncertainty. When the inflation rate, and is often unstable and unpredictable. These companies continue to invest because they can not determine their own future and the future costs. The lower cost of capital leading to lower long-term economic growth. High-inflation countries tend to have worse economicIn the medium term.
Inflation growth is not sustainable. If the economy is growing faster than the long-term trend growth rate lead to inflation, with the rise in demand faster than supply. In order to reduce the inflation rate, will increase the interest rate monetary policy, which will reduce inflationary pressure, but at a lower cost of growth. It may even cause long-term long-term decline. Continued low inflation rate will help to avoid big ups and downs in the economy.
Menu cost.This is a change in inventory costs. If prices rise, it needs time to update the price tag. This is less with the modern technology.
Shoes cost. When the inflation rate, people spend more time and effort to find the lowest price
Decline in exports. If a country's inflation rate is higher than its major trading partners, there would not be competitive and for sale, minus export.

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