1. Unit – Percentage
2. Definition – Same as UN.
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, annual inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.
3. Method of Computation – Same as UN
Inflation is usually estimated by calculating the inflation rate of a price index, usually the Consumer Price Index. The Consumer Price Index measures prices of a selection of goods and services purchased by a "typical consumer". The inflation rate is the percentage rate of change of a price index over time.
Inflation can be measured in two ways
1. Point to Point (The percentage change in the CPI during the last 12
2 Average Inflation (12 month moving average): The percentage difference between the average Price Index of last 12 months & the average Price Index of previous 12 months.
4. Limitation -
1. The effect of inflation is not distributed evenly in the economy, and as a consequence there are hidden costs to some and benefits to others from this decrease in the purchasing power of money. For example, with inflation lenders or depositors who are paid a fixed rate of interest on loans or deposits will lose purchasing power from their interest earnings, while their borrowers benefit. Individuals or institutions with cash assets will experience a decline in the purchasing power of their holdings.
2. Increases in payments to workers and pensioners often lag behind inflation, especially for those with fixed payments.
3. Increases in the price level (inflation) erodes the real value of money (the functional currency) and other items with an underlying monetary nature (e.g. loans and bonds). However, inflation has no effect on the real value of non-monetary items, (e.g. goods and commodities, gold, real estate).
5. Source - Test Purchasing survey of Consumer goods and Services( Weekly),
Department of Census & Statistics