Inflation: The Consumer Price Index

What is Inflation?

Inflation is a general increase in prices and fall in the purchasing value of money. It is often measured using the Consumer Price Index (CPI), which tracks the prices of a basket of consumer goods and services.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) is a measure of the average change in prices over time in a fixed basket of goods and services purchased by households. It is calculated by taking the price of each item in the basket and multiplying it by the quantity of that item purchased by the average household.

The CPI is a widely used measure of inflation, and it is often used to adjust wages, pensions, and other payments to keep pace with inflation.

Causes of Inflation

There are many factors that can cause inflation, including:

• An increase in the money supply
• A decrease in the supply of goods and services
• An increase in demand for goods and services

Consequences of Inflation

Inflation can have a number of consequences, including:

• A decrease in the purchasing power of money
• An increase in the cost of living
• A decrease in economic growth

Controlling Inflation

There are a number of policies that can be used to control inflation, including:

• Monetary policy
• Fiscal policy
• Supply-side policies

Conclusion

Inflation is a complex issue with a number of causes and consequences. There are a number of policies that can be used to control inflation, but the best approach will vary depending on the specific circumstances.