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Understanding Inflation and Purchasing Power

The document discusses the concepts of cost of living, inflation, and purchasing power, explaining how a salary increase can be negated by inflation. It categorizes inflation into demand-pull and cost-push types, and outlines how it is managed through monetary and fiscal policies, measured by the Consumer Price Index (CPI). Additionally, it provides instructions for calculating the yearly basket of goods, CPI, and inflation rates for specific years.

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elora villalon
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14 views14 pages

Understanding Inflation and Purchasing Power

The document discusses the concepts of cost of living, inflation, and purchasing power, explaining how a salary increase can be negated by inflation. It categorizes inflation into demand-pull and cost-push types, and outlines how it is managed through monetary and fiscal policies, measured by the Consumer Price Index (CPI). Additionally, it provides instructions for calculating the yearly basket of goods, CPI, and inflation rates for specific years.

Uploaded by

elora villalon
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

ECONOMIC DEVELOPMENT

COST OF LIVING
AND INFLATION

Prepared by: elaine fabian


if you had a salary increase by 5% , but the
inflation rate at that time is 8%. In this case,
you did not actually experience a salary
increase, in fact you have lost 3% purchasing
power of money.
Inflation is the increase in prices
in the economy, thereby
decreasing the purchasing power
of money.
Inflation is categorized into
two:
1. Demand-Pull Inflation
2. Cost-Push Inflation
Inflation is managed by:
1. Monetary Policy (BSP)
2. Fiscal Policy (Govt)
Inflation is measured
by Consumer Price
Index (CPI)
CPI is done by determining
the price of a basket of
goods on a yearly basis and
then comparing it to a
selected base year
CONSUMER PRICE INDEX
used to measure the total goods and services purchased
and consumed by a household compared to a base year.

Also used for determining the purchasing power of peso.

Knowing inflation makes the public more reactive to the


buying behavior and creates laws to alleviate the
standard of living of the people.
PURCHASING POWER OF THE
PESO (PPP)
The purchasing power of the peso (PPP) is calculated by
taking the reciprocal of the Consumer Price Index (CPI)
for a given period and multiplying it by 100.

PPP = 1 / CPI x 100


Show your computation, Write in a yellow paper.
Submit on Monday.

1. Compute for yearly basket of good (2019, 2021, 2023). 3 points each year.
2. Compute for the CPI of year 2021 and 2023 using 2019 as the based year. 5 points
each year.
3. Compute for the inflation rate of 2021 and 2023. 3 points each year.

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