Economics Term 3
Notes
Grade 12 IEB
Aadit Aheer
, 1 Aadit Aheer
Inflation:
• Inflation is regarded as the sustained increase in the general price level of a wide
range of goods and services in an economy over a period of time.
• As the prices of goods and services increases, the purchasing power of money
decreases thus devaluing a currency.
• Measuring inflation:
o The rate of inflation is measured by the annual percentage increase in the
levels of prices of goods and services
o The CPI (Consumer Price Index) is an indicator used by the SARB to measure
the rate of inflation
o The CPI represents the cost of a basket of goods and services of an average
SA household, where each good/service has a weighting in the basket to
reflect their importance.
o Components with the highest weightings:
1. Housing
2. Transport
3. Food and beverages
• Calculating the inflation rate:
!"##$%& (%)$*+,#$-(."/ (%)$*
o ,#$-(."/ (%)$*
x 100
• Types of inflation:
o Consumer Price inflation: (3 types under CPI)
> The CPI is the most comprehensive measurement of inflation
> It represents the rate of inflation in metropolitan areas
> The CPIX is the consumer price index excluding interest rates
> Core inflation calculates consumer price inflation by excluding items
where the price is volatile (VAT)
o Producer price inflation:
> The PPI (producer Price Index) measures prices of locally produced
goods and services when they leave the factory, goods for export
when they leave the country and goods for import when they enter
the country.
> Changes in the PPI help to forecast changes in the CPI
> The SARB uses the PPI and CPI to influence inflation to maintain an
inflation rate of 3-6%
o Other types of inflation:
> Hyperinflation: when the rate on inflation is excessively high/ rapid
increase in the rate of inflation (usually over 50%, was experienced by
Venezuela and Zimbabwe)
> Deflation: when inflation is negative and the average prices of goods
and services drops (NB does have consequences)
Notes
Grade 12 IEB
Aadit Aheer
, 1 Aadit Aheer
Inflation:
• Inflation is regarded as the sustained increase in the general price level of a wide
range of goods and services in an economy over a period of time.
• As the prices of goods and services increases, the purchasing power of money
decreases thus devaluing a currency.
• Measuring inflation:
o The rate of inflation is measured by the annual percentage increase in the
levels of prices of goods and services
o The CPI (Consumer Price Index) is an indicator used by the SARB to measure
the rate of inflation
o The CPI represents the cost of a basket of goods and services of an average
SA household, where each good/service has a weighting in the basket to
reflect their importance.
o Components with the highest weightings:
1. Housing
2. Transport
3. Food and beverages
• Calculating the inflation rate:
!"##$%& (%)$*+,#$-(."/ (%)$*
o ,#$-(."/ (%)$*
x 100
• Types of inflation:
o Consumer Price inflation: (3 types under CPI)
> The CPI is the most comprehensive measurement of inflation
> It represents the rate of inflation in metropolitan areas
> The CPIX is the consumer price index excluding interest rates
> Core inflation calculates consumer price inflation by excluding items
where the price is volatile (VAT)
o Producer price inflation:
> The PPI (producer Price Index) measures prices of locally produced
goods and services when they leave the factory, goods for export
when they leave the country and goods for import when they enter
the country.
> Changes in the PPI help to forecast changes in the CPI
> The SARB uses the PPI and CPI to influence inflation to maintain an
inflation rate of 3-6%
o Other types of inflation:
> Hyperinflation: when the rate on inflation is excessively high/ rapid
increase in the rate of inflation (usually over 50%, was experienced by
Venezuela and Zimbabwe)
> Deflation: when inflation is negative and the average prices of goods
and services drops (NB does have consequences)
