Inflation

A world where prices never rise would be wonderful! 

Rising prices decrease people’s purchasing power continually. You just cannot buy as much with a R100 as you could a year ago, and just when you think you saved enough to buy that dream house or motorcar, its price had increased again. A once off increase in price might be acceptable now and then, but the problem is this constant increases from day to day and month to month which people find unacceptable – this is known as inflation. Inflation let you income looks bigger, but it is just a lot of wind because one can only buy less and less with it. 

But what causes inflation? And what can be done about it? 

Watch the following video by the legend Jacob Clifford:

To calculate the inflation rate of a country one can use the following:

The inflation rate is then calculated as ΔCPI/CPI x 100% and economic growth: ΔGDP/GDP x 100, where the second GDP or CPI belongs to the previous year.

The inflation rate = (Index of this year – Index of previous year) x 100 % Index of previous year.

Notice that you do not obtain an inflation rate when you divide the nominal GDP with the Real GDP and multiply it by a 100. This will still just yield an index. To calculate the inflation rate from this the deflators of two years must be calculated and then the inflation rate can be calculated from that following the method given above.