Inflation
Inflation refers to a general and sustained increase in prices over time. It is measured using an A measure or indicator that is used to compare changes in value over time., eg the Consumer Prices Index (CPI), which tracks how the price of a typical basket of items changes over time. The rate of inflation is usually stated as a percentage. An annual inflation rate of 2% means that a product that was priced at £1.00 last year will now be priced at £1.02.
The impact of inflation on consumers
Inflation reduces the What money can actually buy. of money since more money is now needed to buy the same items.
High rates of inflation mean that unless Money received from employment or investments. increases at the same rate, people are worse off. This leads to lower levels of consumer spending and a fall in sales for businesses.
Question
The national minimum wage increased by 25% between 2010 and 2019. How does this compare to the percentage change in the price of crisps during the same period?
The price of crisps increased by 49%:
Percentage change = (67p − 45p) ÷ 45p × 100
22p ÷ 45p × 100
49% (rounded up)
Since the price of crisps has increased at a faster pace than the national minimum wage, someone earning the national minimum wage between 2010 and 2019 has seen a reduction in their purchasing power for crisps.
\(\text{Percentage Price Change} = \frac{\text{2018 Price - 2010 Price}}{\text{2010 Price}}\times 100\)
\(\text{Percentage Price Change} = \frac{\text{67p - 45p}}{\text{45p}}\times 100\)
\(\text{Percentage Price Change = 04889}\times 100\)
\(Percentage Price Change = 49% (to 0 decimal places)\)
The impact of inflation on businesses
To compensate for inflation, staff may ask for pay rises above the rate of inflation. This would lead to higher costs for businesses and could result in prices being increased further, adding to inflation.
Inflation also affects global businesses that trade overseas. If inflation is higher in the UK than it is elsewhere, then the UK’s goods become comparatively more expensive. This leads to a fall in the A request for something to be sold or supplied. for the UK’s A product that can be touched..
