The Effect Of Inflation On The Price Of Inflation

1173 Words Sep 18th, 2014 5 Pages
Inflation is generally, defined as sustained or continuous increase in the general price level in an economy. Inflation has been described and categorised in terms of the rate at which the general price level is increasing , market mechanism , expectations and causes. In explaining the causes of inflation one common cause always surfaces for consideration and that is that inflation occurs when aggregate demand is growing at unsustainable rate leading to increased pressure on scarce resources. Or Inflation can be caused when aggregate demand exceeds aggregate supply. This is commonly referred to “demand-pull” factors. Other factors mentioned in economic theory are the “cost push” factors, inflation expectations.
The consumer price index (CPI) is a measure commonly used for inflation measurement and can be recorded on a monthly, quarterly or yearly basis. In Uganda, this measure is known as the headline inflation index. This macroeconomic aggregate measure is made up of a number of sub-indices: food, beverages and Tobacco, clothing and footwear, rent, fuel and utilities, household and personal goods, transport and communication, education, health, entertainment and others. The CPI measures changes in the average price of consumer goods and services. After the CPI is compiled and computed, the rate of inflation is the rate of change in the CPI over a period (e.g. year-on-year inflation rate) and usually expressed in percentages.
The need to control inflation is core to monetary…
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