Inflation

A sustained decrease in the general price level of goods and services.

1.5%

It can make exports more expensive, reducing international competitiveness.

(CPI new - CPI old) ÷ CPI old × 100

Because it ignores improvements in product quality and consumer substitution.

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

Uncertainty, reduced competitiveness, and redistribution of income.

Inflation caused by an increase in aggregate demand.

Higher wages and increased prices for imported raw materials.

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

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

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

An AD/AS diagram with SRAS shifting leftward.

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

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

5%

An AD/AS diagram with AD shifting rightward.

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

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