Define inflation?

Question

define inflation and the difference between underlying and headline measures of inflation.

Answer 1

Inflatation - stagflation - deflation

Increase  - no change - decrease

Answer 2

Inflation is the loss of spending power of the currency

Answer 3

veratu... is correct but a bit long, and at times inappropiate, whereas priya is dot correct as an overall ternd, add over a sustained period of time....

Answer 4

inflation is when the price of goods rise more than the usual price, mainly because of economic domino effects.

Causes of inflation:

1) Rise of commodity price; commodity is the foundation of every goods. A single rise to it will affect another goods. E.g a rise of woods price will inflate the price of wood furniture, or other wood based products.

2) Limitation of goods/commodities. Some goods are non-renewable, making it more limited as we use it. So the rule is the more limited the good is, the more expensive it'll be;as it gets harder to get it. E.g fuel.

3) High demands of goods. When people demands for goods more than usual, producers or suppliers will increase to price to support the limited supply with the high demand. Moreover, producers also want to make profits.

Measures:

1) Save money, save money! This will reduce the demand of goods, thus suppliers will do anything to attract back customers (and compete with other companies to get the most customers!); which is reducing the price of goods!

2) Increase in tax. May sounds cruel but this will force people to save money as they need to pay more for the tax. In the long run, demand will be reduced, price will also be reduced!

3) Buy alternative products; e.g exchange from eating chicken to eating fish if chicken's price is inflate.

4) No credit cards! Credit cards allow you to spend more, n more n more. So what'll happen? High demand = high price!

5) BUY ONLY WHAT YOU NEED. REMEMBER HAVING THE MOST EXPENSIVE GOODS DOES NOT MEANS YOU ARE GREAT, IN FACT IN ECONOMIC TERMS YOU ARE STUPID IF YOU FLOW YOUR MONEY WITH UNNECESSARY EXPENSIVE GOODS.

hope it'll help tq!

Answer 5

Inflation is the general rise of prices over time, though most economists are careful to distinguish inflation as price rises from monetary causes (ie, too much money in circulation relative to demand for money), while price rises from market factors (high demand, low supply) are considered a normal part of market functioning.

I think the terms "Underlying" and "headline" are specific to your text, but I'd guess that headline means some broader measure of inflation - price of a basket of goods - while underlying means the root cause of it. For instance, if in a basket of 76 goods, two of them are rising much faster than the others (indeed, some goods may be dropping in price), then the headline rate looks at all 76, while the underlying measure looks at those two which are chiefly to blame.

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Note to Sami - stagflation is actually a combination of inflation and unemployment. Prices rise but nominal income falls.

Answer 6

When you pay bills, go shopping keeping a list of things like house rent, petrol (gas) bill, food (this is the most important), tickets for the movies, newspapers, electric power bill and so on; keep an account for 12 months. For the same quantum (for example for the same gas) on 31 Dec on two successive years make the total bill.

If the expenditure is Rs. 200,000 for the first year;

Rs. 216,000 for the second year, it implies that it takes more money to buy the same basket of goods.

Inflation in one year is

(216,000 - 200,000) / 200,000

= 8/100.

In percentage terms it is (8/100) X 100 = 8%.

If in one year you went on a vacation and didn't go the next year, ring up the airlines, the hotel and the boatman who gave you the boat ride, to find out the cost of these and include in the basket. Take care to see that the basket remains unchanged.

CPI (Consumer price index) is calculated thus, giving weightage to each item of consumption or to groups of items.

A particular item like oranges may undergo big fluctuations in cost because of climatic/agricultural factors over weekly or monthly intervals and such fluctuation is 'noise' for statistical purpose. When noise is smoothed out it gives the core (underlying) inflation. At times an event like an earth quake disrupts economic activity signeficantly making things difficult for calculating inflation. The price/cost  increse may creep into several years later giving rise to headlines measure in inflation.

It is a measure of the erosion of purchasing power in Rupee (or Dollar or Pound).

Answer 7

Inflation is the overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index.

For more info you can refer this link :

http://en.wikipedia.org/wiki/Inflation#E...

Hope this helps !