Inflation is a measure of changes in the cost of living. It is calculated by using statistics such as Consumer Price index CPI, retail price index RPI. However, the official inflation rate doesn’t include every price and some consumers may experience different inflation rates. For example, if the price of basic food items increases 50%, …
In a recession, you would usually expect a fall in the inflation rate due to lower demand and lower economic activity. The inflation rate fell in major recessions like 1929-32, 1981, 1991 and 2020.. However, it is not guaranteed inflation will fall in recession. For example, we could have a period of stagflation – rising …
Originally published in March 2015. Current inflation rate (Feb 2020) is 1.3%. I was 0.7% out. But there was no skill in predicting inflation of 2%. If Ii had to predict inflation for 2025, I would predict the same = 2%. Reader’s Question: What will be the inflation rate in 2020? Firstly, I can’t resist …
The optimal inflation rate is often considered to be around 2%. For example: The UK target inflation of 2% +/-1 The ECB target inflation of less than 2% US Federal Reserve target inflation of less than 2% (But from 2020 are likely to make inflation target symmetrical like the UK) Why Central Banks wish to …
Readers Question: How does the MPC predict future inflation? Inflation is caused by a mixture of demand-pull and cost-push factors. Therefore, the MPC will look at many statistics which give an indication of whether the economy is reaching full employment and causing inflationary pressures. This will include rate of economic growth, unemployment and the amount …
Readers Question: Can inflation cause a recession? Inflation is not the main cause of recessions. Usually, recessions are caused by factors such as high-interest rates, fall in confidence, fall in bank lending and decline in investment. However, it is possible that cost-push inflation can contribute to a recession, especially if inflation is above nominal wage …
In 2008, Zimbabwe had the second highest incidence of hyperinflation on record. The estimated inflation rate for Nov 2008 was 79,600,000,000% That is effectively a daily inflation rate of 98.0. Roughly every day, prices would double. It was also a time of real hardship and poverty, with an unemployment rate of close to 80% and a …
Readers Question: Why is it that the value of the exchange rate falls when there is higher inflation? How inflation affects the exchange rate A higher inflation rate in the UK compared to other countries will tend to reduce the value of the Pound Sterling because: High inflation in the UK means that UK goods …