| What are the 2 Ways of Defining Inflation | 1. Inflation is the Sustained Rise in the Price of Goods and Services over some Time.
2. Inflation is the Fall in the Value of the Money. [£10 can buy Less - its Purchasing Power has Fallen] |
| What is
1. Deflation
2. Hyperinflation
3. Disinflation | 1. Deflation is when the Average Prices of Goods are Falling
2. When Prices shoot up Rapidly, and the Currency loses its Value [PP Plummets]
3. When the rate of Inflation is slowing down. Prices are still Rising, but just at a Slower Rate. |
| What is the Retail Price Index? [RDI]
-How is it Calculated - what does it show?
-How are the items even defined? | -The RDI is just a Measurement for Inflation. That's it
-2 Surveys is needed. 1st is a Survey of 6K Homes [Living Costs & Food Survey] which finds out what people Spend their Money on, and what Proportion. This helps with the Weighting of each item [20% on Apples = 20% Weight]
-Second Survey is on Prices, and just measures the Change of 700 most Commonly used Commodities [Basket of Goods] [These Items comes from the First Survey]
-Price Changes are then Multiplied by the Weightings, and then Converted to an Index Number. Inflation is just the Percentage Change to the Index Number |
| What is the Consumer Price Index? [CPI]
-How is it Calculated - any differences to the RPI?
-What does it show? | -Similar to the RDI [Measurement of Inflation] but 3 Differences
1. Some Items are Banished from the CPI, main ones being Mortgage Interest Payments & Council Tax
2. Different formula to calculate the CPI
3. Bigger sample is needed for the CPI
-This makes the CPI a little lower than the RPI, unless Interest Rates are Low. But they have the same long term trend
-The UK uses the CPI officially, and Internationally to an Extent |
| What are the Limits of the RPI and the CPI | -RPI will Exclude Households in the top 4% of Income, and CPI will be more Broader but doesn't factor Mortgage Payments
-Information from the Living Costs & Food Survey can be Wrong
-Basket only changes once a Year so Short Term Changes is Missed |
| Why is the RPI and the CPI helpful for Wages and State Benefits? | -Employers and TU will have them as a Starting Point in Talks
-Government will use them to Increase State Pensions and Welfare Benefits
-Benefits are Index- Linked - Rise automatically each year by the Same Percentage as the Chosen Index |
| Why is the RPI and CPI helpful for UK's International Competitiveness | -If the CPI Rate is Higher in Britain than other nations, then the UK Goods will be less Price Competitive, as it'll be more Expensive for other Nations to purchase [Prices are rising]
-Exports will Fall, and Imports, because of Domestic Inflation, will be made Cheaper |
