Difference between revisions of "Inflation"
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| − | In economics, inflation is a general rise in the price of goods and services in relation to purchasing power. | + | In economics, '''inflation''' is a general rise in the price of goods and services in relation to purchasing power. |
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| + | The most widely used measure of inflation is the [[consumer price index]] (CPI). It reflects changes in the price of a representative "basket" of goods and services sold: food, housing, transportation, furniture, clothing, recreation, and other items. | ||
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| + | The inflation rate is expressed as a percentage increase in average prices over a year. For example, if the cost of the CPI "basket" rises from $100 one year ago to $102 today, the current inflation rate is 2 per cent. When the CPI rises, the purchasing power of the average consumer's dollar falls.<ref> | ||
| + | Wanniski, Jude. "Money and Tax Rates." In Wanniski. The Way the World Works. 1978.</ref> | ||
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| + | Prices tend to go up when demand from consumers exceeds the normal capacity of producers to supply goods and services. An excess supply of goods and services tends to put downward pressure on prices. | ||
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| + | High inflation undermines the economy's ability to generate long-lasting growth and job creation. Consumers and investors may put off purchases because of uncertainty. High inflation erodes the value of incomes and savings. People on fixed incomes, including the elderly and poor are particularly vulnerable to inflation. | ||
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| + | Hyperinflation is out of control inflation and has occurred when there is a massive imbalance between the supply and demand and a complete loss of confidence in the currency. It has occurred when prices are decontrolled by central governments, like in the collapse of the USSR, where inflation reached over 1000% in some areas. <ref>[http://globalis.gvu.unu.edu/indicator.cfm?IndicatorID=152&Year=1995&Country=UA] Inflation Indicators Ukraine</Ref> | ||
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| + | ==References== | ||
| + | <References/> | ||
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[[category:economics]] | [[category:economics]] | ||
Revision as of 00:01, September 6, 2007
In economics, inflation is a general rise in the price of goods and services in relation to purchasing power.
The most widely used measure of inflation is the consumer price index (CPI). It reflects changes in the price of a representative "basket" of goods and services sold: food, housing, transportation, furniture, clothing, recreation, and other items.
The inflation rate is expressed as a percentage increase in average prices over a year. For example, if the cost of the CPI "basket" rises from $100 one year ago to $102 today, the current inflation rate is 2 per cent. When the CPI rises, the purchasing power of the average consumer's dollar falls.[1]
Prices tend to go up when demand from consumers exceeds the normal capacity of producers to supply goods and services. An excess supply of goods and services tends to put downward pressure on prices.
High inflation undermines the economy's ability to generate long-lasting growth and job creation. Consumers and investors may put off purchases because of uncertainty. High inflation erodes the value of incomes and savings. People on fixed incomes, including the elderly and poor are particularly vulnerable to inflation.
Hyperinflation is out of control inflation and has occurred when there is a massive imbalance between the supply and demand and a complete loss of confidence in the currency. It has occurred when prices are decontrolled by central governments, like in the collapse of the USSR, where inflation reached over 1000% in some areas. [2]