Inflation

G3 Economics - syllabus K343, 2027

How inflation is measured with the CPI, its causes and consequences, and policies to control it.

• Inflation, deflation and the Consumer Prices Index

  Inflation is a sustained rise in the general price level, measured by the change in the Consumer Prices Index.

• Causes of inflation: demand-pull and cost-push

  Demand-pull inflation comes from total demand growing faster than output; cost-push comes from rising costs of production.

• Who gains and who loses from inflation

  Inflation hurts savers, lenders and people on fixed incomes, can help borrowers, and makes a country's exports less competitive.

• Policies to control inflation

  Contractionary fiscal and monetary policies cut demand-pull inflation; supply-side policies and a stronger currency ease cost-push inflation.

• Put it together: Inflation reaches 7%

  Inflation has reached 7%, well above the 2% target. Part of it comes from a spending boom and part from higher import prices. Compare three responses.