Wednesday, December 10, 2008

Understanding Inflation Data

“Consumer Price Index (CPI) annual inflation – was 4.5% in October down from 5.2% in September”


Inflation: Defined as sustain increase in general price level

Inflation standing at 4.5% in October means that prices of goods & services had increase 4.5% over the last 12 months. When it was announced earlier that the inflation rate have fallen from 5.2% to 4.5%, inflation wasn’t really falling. It is still increasing, but at a slower rate

This is a very common mistake by students in exam. Whenever they are given a data (with % axis) that shows a falling macroeconomic indicator, they will say “… falling” & thus lose 2/3 marks for that

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