Inflation

• Inflation

  Inflation is a persistent and appreciable rise in the general level of prices of goods and services measuring by the consumer price index CPI
• CPI

  Calculated by the average percentage price increases of a basket of consumers items typically used by Australian Households, calculated every quarterly: March,June,September,December
• Calculating Inflation

  CPI Year 2 ( old quarter) - CPI Year 1 (new quarter)

  over. X100

  CPI Year 1 ( old quarter)
• Groups in the CPI Baskets

  Biggest- Housing 23%

  Middle- Alcohol and tobacco 7%

  Least- Communication 3%
• Main Causes/Types of Inflation

  Demand Pull- total demand is greater than the total supply Output cannot expand e.g after COVID-19 increase in immigration creating high demand for housing and not enough supply

  Cost Push Inflation- rising costs of production are passed onto consumers who have to in turn pay higher price for final goods and services e.g eastern state floods ( increase prices of agri goods), Russian Ukraine War, increase fuel prices, higher transport costs, fruit and veg prices increases.
• Effects of Inflation on the economy Negatives

  International Competitiveness if Aus has higher inflation will loose international competitiveness, exports more expensive, demand for goods decreases producers profit decreases

  Capital for labour substitution workers demanding higher wages, businesses substitute labour for capital equipment ( robots replacing wait staff) , increase in structural employment

  Consumers on fixed income loose out, fixed income it doesn't increase able to buy less goods and services, standard of living decreases
• Effects of Inflation on the economy Positives

  Taxpayers and Government as inflation increases workers will demand higher wages which will push them into higher tax bracket governments will get more revenue