Inflation/Deflation Flashcards
What is the target rate for inflation in the UK?
2%
What is the acceptable range of inflation?
1-3%
Who manages inflation in the UK?
The Bank of England
What are the measures of inflation?
CPI
RPI
What is CPI?
Consumer Price Index
How to calculate inflation with CPI?
Select a base year
A food and expenditure survey of 40,000 households
As a result, a basket of goods and services is created (700 of the most popular)
Each good receives a weighting of importance
Prices of these goods are tracked
Equation of CPI
Weight*Price change
What are the limitations of CPI?
Not fully representing
Slow to respond to change
Changes in Quality
Doesn’t include all costs
What’s inflation?
A sustained rise in the general price level or a fall in purchasing power.
What’s deflation?
A sustained fall in the general price level or a rise in purchasing power.
What’s disinflation?
A fall in rate of inflation while inflation is still positive
What is the inflation rate?
The percentage rise in price level over a year
