How is inflation measured?

How is inflation measured?

Inflation is typically measured using the Consumer Price Index (CPI) or the Producer Price Index (PPI). The CPI tracks changes in the price level of a basket of consumer goods and services, while the PPI measures the average changes in prices received by domestic producers.

What are the main factors that contribute to inflation?

Main factors include demand-pull inflation, cost-push inflation, and built-in inflation. Demand-pull occurs when demand exceeds supply, cost-push happens when production costs rise, and built-in inflation is linked to adaptive expectations.

How does inflation affect purchasing power?

Inflation erodes purchasing power because as prices rise, each unit of currency buys fewer goods and services. This means consumers can afford less with the same amount of money.

What can governments do to control inflation?

Governments can control inflation through monetary policy, such as adjusting interest rates, and fiscal policy, like changing tax rates or government spending.

Is inflation always bad for the economy?

Not necessarily. Moderate inflation can indicate a growing economy, but high inflation can lead to uncertainty and decreased purchasing power.