Facts and Statistics on Inflation
Inflation is the change in price levels of goods and services and is usually measured as a percentage of change on an annual basis. The inflation rate is one of the most important economic indicators as inflation changes the value of a currency. More accurately it changes the purchasing power of a currency. If an average pair of shoes costs 100 dollars one year and 103 dollars the next year, the implied inflation rate is three percent. 100 dollars would have sufficed to buy an average pair of shoes in the first year, not in the second. The purchasing power of the dollar has therefore decreased.
Inflation is usually measured based on price indices that are considered good indicators for the overall price level. In the United States, these are the Consumer Price Index (CPI)
and the Producer Price Index (PPI)
. Both indices are compiled by the Bureau of Labor Statistics. While the CPI reflects price changes of consumer goods and services, the PPI measures changes in producer prices for products that are used during the production process. The inflation rate quoted in the media is usually based on consumer prices
Inflation can result from many different causes. Two of the most common are demand-pull inflation and cost-push inflation. Demand-pull inflation occurs when the demand for goods and services is growing faster than the supply, which is often the case in fast-growing economies. Cost-push inflation occurs when production costs rise and companies have to raise prices to protect their profit margins. A good example for the latter is the significant influence that barrel oil prices have on the general consumer price level.
The average inflation rate in the United States
was at a moderate 1.6 percent in 2010 compared to 3.3 percent in China
and the UK
and 13.2 percent in India
. According to an IMF ranking, India was among the ten countries with the highest inflation in 2010
. In 2009, prices in the U.S. decreased for the first time since 1955. A decrease of the general price level is called deflation.
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