Readers Question: Why is Inflation negative when prices are rising?
Often people ask, how come the inflation rate is negative when I notice prices rising? Firstly, if prices in the basket of goods used to measure inflation are rising, then by definition that is inflation.
Deflation means the cost of living is decreasing and the prices in the basket of goods are decreasing.
Inflation is calculated using a basket of goods (1,000 of the most common items). The price increase is then multiplied by their weighting (their relative importance as a % of consumer spending.)
However, different goods are often rising at different rates. For example, petrol, which has a relatively high weighting, has been quite volatile in recent months. The fall in inflation was partly due to falling oil prices. Now that oil prices are rising, this will have an upward pressure on inflation.
It may depend on the type of goods you are buying. For example, a pensioner may spend a high % of his income on heat, light, fuel and food. If these goods are rising faster than the official inflation rate, their personal inflation rate will be higher than the average inflation rate.
Sometimes, we need to exclude volatile items to get a better picture of the underlying inflation trends. This graph uses a median value of inflation. Median measure excludes the most volatile goods). This suggests inflation is higher than the official figure.
Another issue is that there are different measures of inflation. In the UK, RPI includes mortgage payments. CPI doesn’t include mortgage payments. When interest rates fall, there is a sharp drop in mortgage payments and RPI. But, lower rates doesn’t effect CPI.
This is why we have had negative RPI inflation rate, but positive CPI inflation rate
what will they do when they have all the money in the world and we are reduced to rioting in the streets because the only way they can keep their riches is by closing down all the franchises and big stores… maybe if the governments would not give them so many concessions, like tax breaks. MoneyMarts sold out to the americans…. 1900 stores and the goverment is whining about their banks failing. Imagine the tax they got. Imagine if advertising was not a write off, that surplus alone would save the Bully Big Brother usa.