Summary Economics - Inflation Notes (grade 12 )

Economics Notes
Inflation

What is Inflation:
- Inflation is a 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 costs of things increase, money loses its value.
= The purchasing power of money decreases.

What measures Inflation:
- Inflation is measured using different methods
1. CPI
2. CPIX
3. PPI
4. Core Inflation
- Inflation is measured using the CPI
= It is measured by the annual (or monthly) percentage change in the level
of prices.
= CPI means the Consumer Price Index and it is used in South Africa by
SARB as an indicator for monetary policy decisions.
= The CPI target for inflation is 3-6% and this target is to achieve a
sustainable period of low and stable inflation.
= Low inflation is known as price stability.
- The CPI
= Consumer Price Index
= It represents the cost of the basket of goods and services for an average
SA household.
= The basket is updated every 4 years.
- CPIX
= The Consumer Price Index BUT excluding mortgage interest rates.
= It calculated consumer price inflation by excluding the effect of interest
rates on home loans.
- PPI
= Producer Price Index
= Measures prices of locally produced goods when they leave the factory
and goods for exports and goods for import when they enter the country.
= It predicts changes in the price of consumer goods and services.
- Core Inflation
= Calculates consumer inflation by excluding certain items that face volatile
price movements.
= Eg) Food and energy prices and VAT.

, - Inflation is calculated by newCPI - oldCPI DIVIDED by oldCPI x 100.
=




Different Types of Inflation:
1. Disinflation.
2. Deflation.
3. Hyperinflation.
4. Stagflation.