Inflation Flashcards
What is inflation
A sustained and significant increase in the general price level over a period of time
What does an index do
It shows the average changes in price of a group of items over a certain period of time
What are the 9 types of inflation
Headline inflation - CPI
CPIX inflation
Core inflation
Administered prices inflation
Producer inflation
All-inclusive inflation
Hyperinflation
Stagflation
Deflation
What is all-inclusive inflation
The ratio of GDP at current prices to the GDP at constant prices for a specific year
What are 6 characteristics of CPI
Pertains to cost of living
Basket consists of consumer goods and services
Capital and intermediate goods are excluded
Prices include VAT
Interest rates are taken into account
Prices of imported goods are not shown
What are the 6 characteristics of PPI
Pertains to cost of production
Basket consists of goods only
Capital and intermediate goods are included
Prices exclude VAT
Interest rates are excluded
Prices of imported goods are shown explicitly
What are the 3 causes of inflation
Monetarist Explanation
Demand Pull inflation
Cost Push inflation
What is the Monetarist explanation of inflation
A higher increase in the supply of money in circulation than in supply of goods and services
What is demand pull inflation
When aggregate demand for goods and services exceeds the aggregate supply of goods and services
What are the 4 causes of demand-pull inflation
Increased consumption by households
Investment spending
Government spending
Export earnings
What can be said about an increase in the money supply without an increase in production
It causes an excessive demand
What is cost-push inflation
Inflation triggered by an increase in the cost of production which pushes up the general price level
What are the 7 causes of cost-push inflation
Wages
Key inputs
Profit margins
Productivity
Exchange rate depreciation
Natural disasters
Theft by employees / shoplifting
What are the 8 consequences of inflation
Debtors / Creditors
Wage and salary earners
Investors and savers
Taxpayers
Industrial instability
Unemployment / Poverty
Balance of payments problems
Psychological influence
Read through pages 65 and 66
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What are the short term expectations of the inflation problem
Demand problems
Cost problems
What are the long-term expectations of the inflation problem (5)
Logistics infrastructure
Energy problems
Labour
Exchange rate depreciation
Social spending
What are the 2 measures to combat demand-pull inflation
Monetary measures
Fiscal policy
What are the 2 measures to combat cost-push inflation
Productivity
Competition
How has inflation targeting been effective
Curbing demand-pull inflation by limiting consumption expenditure
Managing consumers expectations about future rates
Allowing businesses to make investment decisions knowing that prices will be stable
Providing an explicit measure that serves to improve and accountability of the SARB
What has inflation targeting not been effective in
Controlling cost-push inflation because it was designed to cater for demand
Controlling many different factors - e.g. increase in oil price
