Inflation. inflation index. The concept and essence of phenomena

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

Discussion of inflation today has ceased to be the prerogative of state authorities and the media. This concept, as well as its impact on the economy and the wallets of citizens, is of concern to an increasing number of ordinary people. This material will help readers understand what inflation is. In addition, the article will talk about the inflation index or the consumer price index.

What is inflation

Surely most of the readers to some extent already have an idea about the phenomenon under consideration. Inflation is an increase in the level of prices for goods and services over a significant period of time. In other words, it is a decrease in the purchasing power of the same amount of money. It should immediately be noted that not every increase in the cost of goods and services refers to inflation. It is not uncommon for price increases to be speculative and there are no objective economic reasons for this.

Causes of inflation

There are several main factors that can cause an increase in the cost of goods and services and a decrease in the "price" of monetary units. ATFirst of all, it is necessary to note the excessive issue of the national currency. When there is more money in circulation than the required amount, inflation occurs. But not only the issue can lead to an overabundance of funds. Such a popular banking product as lending also contributes to an increase in cash in circulation and, as a result, can cause inflation.

It should be noted that the fall in the purchasing power of the currency is a common phenomenon in the world. Even in developed market economies, an inflation index of 2% per year is considered normal.

Another reason for raising prices for goods and services is the rise in energy prices. For example, gasoline, diesel and natural gas.

In addition, inflation is caused by a decline in production and an economic downturn in the country, provided that the level of wages remains the same. This leads to an overabundance of the money supply in the hands of the population. At the same time, this amount of currency is not supported by the volume of goods and services produced.

CPI

One of the most important indicators of inflation is the consumer price index. It indicates fluctuations in the cost of a certain set of goods and services over time. To determine the inflation index, it is necessary to calculate the ratio of the price of goods and services from the consumer basket in the current period to the cost of the same set in the previous cycle. In this way, you can set the rate of increase or decrease in prices forgoods and services over time.

Inflation index is determined every quarter or monthly. It is a weighted average of various consumer spending. First of all, the costs of food, utilities, shoes and clothing are taken into account. The consumer price index is an important economic parameter. It shows the rate of inflation from the point of view of ordinary citizens, who represent the bulk of consumers of goods and services.

In addition, this indicator is taken into account by the central banks of states when determining interest rates. It should be noted that when calculating the inflation index, investments are not taken into account, but only expenditures on consumer goods.