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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

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CPI (Consumer Price Index) and Inflation

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  1. CPI (Consumer Price Index) and Inflation

  2. Inflation • An increase in the average price level for goods and services across the economy

  3. 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?

  4. 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

  5. A $100 grocery bill would increase by $13 • People will spend money before it loses any more value- especially on big items like cars

  6. Inflation causes more inflation

  7. Consumer Price Index (CPI) • 80,000 of the most commonly bought consumer goods • Rental housing, utilities, food, clothes, entertainment, health care

  8. Total is compared to a base year- figures are calculated for various regions around the country

  9. 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

  10. 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

  11. 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

  12. 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

  13. Wage Price Spiral • When prices begin to rise, workers will begin to demand higher wages

  14. 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

  15. Deflation • Average prices for goods and services falls across the economy

  16. 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

  17. Stagflation • High inflation • High unemployment • Early 1970’s is a perfect example

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