Understanding Inflation and Its Effects
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ScribdTranslationsUnderstanding Inflation and Its Effects
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ScribdTranslationsInflation
If the change in the prices of goods and services is caused by a general increase in
price, depreciation of currency and has a negative effect on people, this situation is the result of
inflation.
According to The Economics Glossary, inflation refers to the increase in the general price level of
selected products included in the basket of goods.
According to the book Economics by Parkin and Bade (2010), inflation is the upward movement of prices.
Deflation is the decrease in the value of prices.
Hyperinflation
There is also something called hyperinflation where prices keep rising every hour.
day and week.
This took place in Germany during the 1920s.
The Philippines experienced this during the Japanese occupation when currency lost its value.
value.
Measuring Price Increase
Consumer Price Index (CPI)
This is commonly used to measure inflation to study changes in prices.
of the products.
The government designates selected products included in a basket of goods.
These products represent basic needs and
expenses of the citizens.
• Looking at the value of these products to measure the speed and size of price changes.
From the market basket, the price index is formed which represents the total and average.
changes in the prices of all goods.
The price index depends on the type of goods that you want to analyze.
Various Types of Price Index
1. GNP Implicit Price Index or GNP Deflator
This is the average price index used to lower the value of the current GNP and
to measure the real GNP.
This measures the overall price level of produced goods and services.
economy within a year.
2. Wholesale or Producer Price Index (PPI)
Indexing the prices paid by retail stores for resold products
they will be sold to consumers.
[Link] Price Index (CPI)
The change in the prices of products and services used is measured.
consumer.
The basis for calculating the CPI is the price and quantity of products that are commonly consumed.
every family inside what is called the market basket.
The market basket is also used to measure the standard of living of the people.
consumer.
The table shows a hypothetical group of commonly used products.
consumption patterns of Filipino families.
Refer to the table above and use the year 2011 as the base year.
To obtain the consumer price index, use the formula:
To compute the level of inflation, use the formula:
This means that there was a 10.03% increase in the prices of goods between the year 2011.
In 2012. This means that goods are more expensive this 2012 compared to last year.
(2011) due to inflation.
To determine the purchasing power of the peso or the ability of the peso as a means of buying,
use the formula:
This means that one peso in the year 2012 could only buy an amount of .91 centavos based on
price in the year 2011 due to inflation.
It is important to know that the value of the peso decreases as the CPI rises. It can be observed that
As the CPI rises, the purchasing power of the peso decreases.
Causes of Inflation
Demand-pull
This occurs when there is an increase in spending by households and businesses.
government and external sector but the increase in aggregate demand is not equivalent
and the growth of total production. Because of this, shortages occur in the market causing
the prices of goods are rising.
According to the perspective of monetarists led by Milton Friedman, the existence of
The excessive amount of money in circulation is one reason why demand is increasing.
Dahil sobra ang salapi, malaki ang pagkakaraon na patuloy na bibili ng maraming produkto ang
consumers will drive the price increase.
Cost-push
The increase in production costs is the cause of the rise in prices of goods.
buy
The additional costs of production factors can increase the overall price.
of the products because the producer would not want to bear the burden of change in
production price.
Causes and Effects of Inflation
Effects of Inflation on Citizens
Ways to Address Inflation
In relation to the problem of inflation, the government is implementing policies and measures.
to ensure that the overall prices of goods are managed. This is also a way to
Hindi will be greatly affected by various sectors of the economy and even every citizen.
financial and physical policies are the instruments used by the government to ensure
the economic resilience of the country.