So inflation is on the increase but what does that mean for you? Think about it for a minute – what do the economists mean when they’re referring to changes in inflation? Let’s take a quick look at what inflation is and how it affects you.
A few facts:
In basic terms inflation is a rise in price in the general level of prices of goods and services in the economy over a period of time.
As the general price level increases, each unit of currency buys less goods and services.
Oddly enough – it really is as simple as that – so the next time economists and politicians complain about high inflation that is all they’re referring to.
It’s the likes of high inflation that see’s many people turning to their credit cards or payday loans in times of need… not always the best choices of finance but a need many of us face on a day-to-day basis.
Want a more detailed explaination on how inflation works? It’s a pretty simple calculation:
Inflation Rate = Consumer Prices Index (CPI) X Retail Prices Index (RPI).
But what is a RPI or CPI?
RPI simply measures the change in the cost of retail goods.
CPI measures the changes in the price level of consumer goods and services purchased by households.
As these levels increase so does inflation… simples!