Goal of Inflation

• What is the ideal rate of Inflation?

  2-3%
• Goal of Inflation?

  The general level of price increase (consumer price inflation) at a rate of 2-3% per annum, on average, overtime
• Inflation?


  Price rise over time
• Disinflation?


  Prices increasing but at a reduced rate (4% becomes 3%)
• Deflation?


  Prices decreasing over time
• Calculating Inflation Rates?

  Inflation is calculated quarterly utilizing the consumer price index (cpi). It tracks changes in 100,000 prices of 1000 g/s, further categorized into 11 categories based on necessity and proportion of income.
• Formula for measuring Inflation?


  $\frac{Price_{year/quarter2} - Price_{year/quarter1}}{Price_{year/quarter1}} *$$100$
• Headline inflation?

  Raw inflation rate created by measuring changes in CPI
• Underlying Inflation?


  Removes impact of relative price changes to gain more accurate indication of how inflation impacts the average person.
• Trimmed Mean?


  Common type of underlying inflation measure

  Excludes 15% of items that increased/decreased the most
• What is Bracket Creep?

  When inflation rises, and income earners gain a pay rise, however it moves them into a higher tax bracket.

  This would leave them worse off as, after tax, they would have less disposable income than they would've previously
• Why might underlying inflation be higher than headline inflation?

  Energy prices

  Note: NEED TO GIVE A REAL & TRUE REASON
• How increase in Labour force size influences goal of inflation?

  more people, means price of labour is cheaper due to surplus of labour, thus demand for labour increases, leading to more favourable AS. Thus easing of Cost inflation.