Inflation Indexing and its Macroeconomic Effects

Inflation is the situation when the general prices of the goods and services are increasing continuously together with the decreasing power of the money. In simpler terms inflations can be defined as the continuous rise in the prices of the goods and services or it can be defined as the situation when the demand is more and the supply is less. According to Milton Friedman “Inflation is always and everywhere a monetary phenomenon [1].”

Inflation is defined in Macroeconomics, logic, science, and policy, as "a sustained increase in the average level of prices of all goods and services". To put in simple words, it means a person has to continually pay more money to get the same amount of goods or services as they acquired before. Inflation is measured by long term comparing average prices using the Consumer Prices Index or the Retail Prices Index. Individual prices do not effect overall inflation, inflation is counted as an overall increase in price levels. Short term inflation is not measured because it could simply

Inflation is a sustained increase in overall level of prices, as measured by some broad index (such as Consumer Price Index) over months or years, and mirrored in the correspondingly decreasing purchasing power of a currency.An increase in inflation means an increase in prices. This affects whether or not a consumer is

Decades ago, many economists did not believe that inflation –the escalation of prices that makes the money to be less valuable in the market- (Newnan, Eschenbach, & Lavelle, 2014) could rise together with unemployment because they stood in the wide belief of a direct relation between economic growth and employment. That is to say that when the nation’s economy is in its healthy moments, the rate of unemployment will decrease, and in the other part the inflation will increase because people have more income, so, they will be willing to spend more. Moreover, people thought that increasing of inflation allowed the economy to grow. Therefore, if inflation reduced, the unemployment would be raised, and consequently, the economy of the country

Inflation is defined as a sustained increase in the general level of prices for goods and services [1]. It is measured as an annual percentage increase. When there is an inflation, the same amount of money buys a smaller percentage of a good or service compared to previous years. This means the value of money drops when inflation occurs. In economics, the value of money is viewed in terms of purchasing power, which is the real, tangible goods that can be bought by money. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 3%, then theoretically a 1£ bottle of water will cost 1.03£ in the following year. After inflation, the same amount of money could not buy the same amount of goods it could beforehand.

Inflation is another aspect of macroeconomic instability and is a rise in the general level of prices in an economy. When inflation occurs, every dollar of income will buy fewer goods and services than before and reduces the purchasing power of money. Inflation doesn’t always mean all prices are rising, and during periods of rapid inflation some prices may be constant and others may fall. Measured by the Consumer Price Index (CPI), the two types are demand-pull and cost-push, and affects the nominal and real interest rates, unanticipated and anticipated inflation, nominal and real interest rates, and hyperinflation.

Inflation is defined as the sustained increase in the general price levels of goods and services over a period of time. When the price level rises, each unit of a currency purchases fewer goods and services, reflecting a reduction in purchasing power per unit of currency. Every economy experiences inflation through the business cycle, which is defined as the natural fluctuation in economic activity between inflation (expansion), and recession (contraction). Inflation is not necessarily a negative factor for an economy because it reflects an expansionary trend of the business cycle that could translate into growth if managed accurately through controlled and efficient monetary policy.

Inflation tends to rise when at the current price level, demand for goods and services in the economy are greater than economy's ability to produce goods and services.

Inflation is an aspect of macroeconomic instability and is a rise in the general level of prices in an economy. When inflation occurs, every dollar of income buys fewer goods and services than before and reduces the purchasing power of money. Inflation doesn’t always mean all prices are rising, and during periods of rapid inflation some prices may be constant and others may fall. It is measured by the Consumer Price Index (CPI), the two types are demand-pull and cost-push, and affects the nominal and real interest rates, unanticipated and anticipated inflation, nominal and real interest rates, and hyperinflation.

The Consumer Price Index (CPI) measures the rate of inflation. This adjusts the average price change of all goods bought by an average household e.g. Bread & Milk, these are both weighted index, so the more money spent on goods in a household have a greater influence on the average price change of those goods.

Inflation is a sustained increase in the aggregate or general price level in an economy, which in turn increases the cost of living. In the UK the rate of inflation has varied a lot from 25% a year in 1974 to the deflation in the 1920s and 1930s. (Economicshelp.org, 2016)

How Economics sees it- “Inflation is a Sustained Increase in the General Price Level of Goods and Services in an Economy over a Period of Time.”

Inflation and Deflation, in economics, terms used to describe, respectively, a decline or an increase in the value of money, in relation to the goods and services it will buy. Inflation is the pervasive and sustained rise in the aggregate level of prices measured by an index of the cost of various goods and services. Repetitive price increases erode the purchasing power of money and other financial assets with fixed values, creating serious economic distortions and uncertainty. Inflation results when actual economic pressures and anticipation of future developments cause the demand for goods and services to exceed the supply available

= Inflation is an increase in the overall level of prices in the economy. Inflation happen because culprit is growth in the quantity o money when a government creates larges quantities of the nation’s money, the value of the money.

In short, “a key feature of inflation is that it relates to the amount of demand in the economy. Inflation tends to rise when, at the current price level, demand for goods and services in the economy is greater than the economy's ability to produce goods and services - its output. One of the original descriptions of inflation remains valid - too much money chases too few goods.”(Bank of England What causes inflation)