Inflation.pptx

# Inflation.pptx - Inflation Inflation Price level a measure...

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Inflation

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Inflation Price level: a measure of the average prices of goods and services in the economy. Inflation: is the continuous increase in the general price level in an economy over a period of time. Inflation rate: is the percentage increase in the price level from one period to another.
Measuring Inflation Inflation is measured by three ways: 1. Consumer price index (CPI) 2. Producer price index (PPI) 3. GDP deflator

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1 . Consumer price index (CPI): Is an average of the prices of the goods and services purchased by urban consumers for a representative basket of goods and services. Ex: the representative basket of goods and services includes for example rice, fuel, and bread.
CPI is calculated as follows: Then inflation rate is calculated:

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Example: 2008 2009 Product Quantity Price in US\$ Expen diture s in US\$ Price in US\$ Expendi tures in US\$ Price in US\$ Expendi tures in US\$ Eye examination 1 50 50 100 100 85 85 Rice 20 10 200 15 300 14 280 Chicken 20 25 500 25 500 27.5 550 750 900 915

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2- Producer price index (PPI) An average of the prices received by producers of goods and services at all stages of the production process. The producer price index includes the prices of intermediate goods such as raw materials. If the prices of intermediate goods rise, the cost of producing final goods and services will rise which may lead firms to increase the prices of goods and services purchased by consumers.
3- GDP deflator

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