A decrease in the rate of inflation compared to the previous period
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What is deflation?
On average, prices were falling
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What are price indices?
They measure changes in the general level of prices based on average levels of spending on a wide range of consumer goods and services
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How is the rate of inflation measured?
Consumer Price Index (CPI) and Retail Price Index (RPI)
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What is CPI?
It forms the basis for the government's inflation target
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What is RPI?
It is used to decide state pension and benefit levels
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What is any value that is described as 'real'?
It has had the effects of inflation removed
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When does demand-pull inflation arise?
When the economy is overheating in a boom and aggregate demand exceeds aggregate supply so prices rise
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When does cost-push inflation occur?
When costs of production are rising as prices of commodities may rise in price
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How does inflation cause uncertainty?
It makes it harder for businesses to make accurate cash flow, cost and revenue forecasts because prices and costs are constantly changing so it is very difficult to forecast future profits
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How does inflation cause a loss of competitiveness?
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