Transcript CPI (Consumer Price Index) and Inflation

CPI (Consumer Price Index) and
Inflation
Inflation
• An increase in the average price
level for goods and services across
the economy
• A rise in the cost of one product is
not a problem- but what if the
price of tires, gas, groceries, toys,
wood, cars, steel, etc were on the
rise?
• Late 1970’s
• Annual prices were increasing at a
rate of 13% per year
• Car that cost $10,000 this year
would cost $11,300 next year
• A $100 grocery bill would
increase by $13
• People will spend money before it
loses any more value- especially
on big items like cars
• Inflation causes more inflation
Consumer Price Index (CPI)
• 80,000 of the most commonly
bought consumer goods
• Rental housing, utilities, food,
clothes, entertainment, health
care
• Total is compared to a base yearfigures are calculated for various
regions around the country
Producer Price Index (PPI)
• Measures the different prices of
goods at all stages of the
production process
• Figures are also compared to a
base year- tally of products is kept
COLA (Cost of Living Adjustment)
• Worker has to earn more money
to keep up the standard of living
that he or she had last year
• Professions have to keep up with
inflation by offering workers cost
of living increases
Supply Side Inflation
• Resource prices in our economy
go up for various reasons
• Increased prices can force cost to
increase for other consumer and
producer goods
Demand Side Inflation
• People buying too many goods
• Too many dollars chasing too few
goods
• Producers cannot keep up with
consumer demand, and they raise
prices
Wage Price Spiral
• When prices begin to rise,
workers will begin to demand
higher wages
Hyperinflation
• Inflation left unchecked and the
money supply continues to grow
too quickly- prices rise rapidly
• Germany in 1920’s
• This week you buy the loaf of
bread for $1, next week it is $50
Deflation
• Average prices for goods and
services falls across the economy
Disinflation
• Inflation falls from a higher rate
to a lower rate without becoming
deflationary
• Inflation rates in 1980 were 13%,
in 1985 they were 4%
Stagflation
• High inflation
• High unemployment
• Early 1970’s is a perfect example