-2%-3% Target of inflation
Indicators:
Consumer Price Index (CPI) most accurate
CPI = (Total dollar expenditure on market basket in current year)/(Total dollar expenditure on market basket in base year) x 100
Percentage change in prices = ( CPI later year – CPI earlier year)/
(CPI earlier year) ] X 100
Uses of CPI
To measure changes in the rate of inflation or deflation.
In the adjustment of wages.
To assess the effectiveness of government economic policy in the control of inflation.
To measure “real” changes in economic growth.
Limitations of CPI
Includes only small sample of G&S so its not accurate
Not accurate as everyone buys diff stuff
Published 6-8 weeks after calculated, inflation rate late
Causes of Inflation
Imported Inflation - importing their inflation increasing our price domestic price increased also
Demand-pull Inflation - consumers demand more, so pull price up
Cost-push Inflation - production prices increase, wages/raw materials, taxes
Worsens EB and causes Unemployment
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