Inflation Rate For Dummies 101, I Think ?

Inflation is a sustained increase in the general…


Price level of goods and services in an economy over a period of time. Rapid increases in quantity of the money or in the overall money supply (or debasement of the means of exchange) have occurred in many different societies throughout history, changing with different forms of money used. Historically, large infusions of gold or silver into an economy also led to inflation. By the nineteenth century, economists categorized three separate factors that cause a rise or fall in the price of goods: a change in the value or production costs of the good, a change in the price of money which then was usually a fluctuation in the commodity price of the metallic content in the currency, and currency depreciation resulting from an increased supply of currency relative to the quantity of redeemable metal backing the currency.


So, the term “inflation” originally referred to increases in the amount of money in circulation. However, most economists today use the term “inflation” to refer to a rise in the price level. An increase in the money supply may be called monetary inflation, to distinguish it from rising prices, which may also for clarity be called “price inflation”. Economists generally agree that in the long run, inflation is caused by increases in the money supply.


The inflation rate is widely calculated by calculating the movement or change in a price index, usually the consumer price index. The inflation rate is the percentage rate of change of a price index over time. The Retail Price Index is also a measure of inflation that is commonly used in the United Kingdom. It is broader than the CPI and contains a larger basket of goods and services. Like, Producer price indices, Commodity, Core price indices,  GDP deflator etc-there’s more? 🙁 


Yesssss like, Cost push inflation, Hoarding, Social unrest and revolts, Hyperinflation, Allocative efficiency, Shoe leather costs,  Menu costs, Labour-market adjustments, Room to maneuver, Mundell–Tobin effect, Instability with deflation, Financial market inefficiency with deflation. And in closing, inflation expectations affect the economy in several ways. They are more or less built into nominal interest rates, so that a rise (or fall) in the expected inflation rate will typically result in a rise (or fall) in nominal interest rates, giving a smaller effect if any on real interest rates. In addition, higher expected inflation tends to be built into the rate of wage increases, giving a smaller effect if any on the changes in real wages. Now, that’s as clear as mud-right? Noooooooooooo


Article credit: Wikipedia

Photo credit: JamesLawson





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