Inflation

A fall in the rate of inflation, meaning prices are rising more slowly.

A fall in aggregate demand or an increase in aggregate supply.

An AD/AS diagram with AD shifting rightward.

Inflation caused by an increase in aggregate demand.

(CPI new - CPI old) ÷ CPI old × 100

Because it ignores improvements in product quality and consumer substitution.

1.5%

5%

It may not reflect the consumption patterns of all households, and it ignores quality changes and substitution effects.

Inflation caused by an increase in production costs, such as wages or raw materials.

An AD/AS diagram with SRAS shifting leftward.

Uncertainty, reduced competitiveness, and redistribution of income.

The average change in the prices of a basket of goods and services typically consumed by households.

It can make exports more expensive, reducing international competitiveness.

It increases the real value of debt, making it harder for borrowers to repay.

An index where each item is given a weight based on its relative importance in consumer spending.

It erodes the purchasing power of their savings if interest rates are lower than inflation.

10%

Higher wages and increased prices for imported raw materials.