1. Learning Objectives
Define and explain demand pull and cost push inflation
Distinguish between CPI and RPI measures.
Outline and analyse the impacts and trends of changing inflation rates on businesses.
Evaluate the actions of businesses and the government to high inflation.

2. Inflation
A2 Business Studies

3. Groups Inflation and Interest rates Unemploy-ment Exchange Rates
Economic growth
Ellie
Carly
Chloe
Clemmie
Fran
Danielle
Nicole
Laura
Sophia
Hanne
Aimee
Annabel
Katie

4. Presentation objectives
Definition of topic & how measured
Recent trends
The effect of recent trends on business strategy
How can businesses respond (your views and a real ife example)

5. Timetable for presenting
Friday 15th Jan - Team Growth
Tuesday 19th Jan - Team Unemployment
Friday 22nd Jan - Team Ex Rates
Tuesday 26th Jan - Team Inflation and interest rates

6. Presentation Guidelines
All team members to take equal responsibility & role
Appropriate handouts to be provided
As long as objectives met lesson can be run how you want (eg role play, games, video, quiz, case study etc)
Classroom based resources can be used
Any additional resources should be provided by team (e.g. prizes)

7. Curly Wurly
Why did a Curly Wurly Bar used to cost 10p in 1990 and now it costs 30p?

8. Inflation Inflation is the sustained rise in the general price level and an associated fall in the value of money.

9. Inflation Measurement
Inflation is measured by the Retail Price Index (RPI) and the Consumer Price Index (CPI).
RPI - measures the monthly changes in the prices of a basket of goods and services including changes in housing and council tax.
CPI - measures the monthly changes in the prices of a basket of goods and services purchased by UK households.
This is the official measure of inflation which the government target to increase by 2% per year.
It gives a lower rate than the RPI and can be compared to inflation rates in Europe.

10. Causes of Inflation

11. Three Causes of Inflation 1. Demand Pull Inflation
This is when demand for a business’s goods and services exceeds its ability to supply these products.
This type of inflation normally occurs at the boom stage of the cycle as consumers demand higher wages and therefore have higher incomes and demand more goods and services from businesses, pulling up the price level.

12. 2. Cost Push Inflation
This is when the costs of production increase. Causes include increasing wage rates, falling exchange rates (which pushes up the cost of imported raw materials) and increasing oil prices (which are a significant cost element in some sectors).

13. 3. Expectations on inflation
If managers and businesses anticipate rising inflation they might take actions which fuel further inflation. If firms think suppliers will raise prices they will also raise their own prices to ensure that profit levels are maintained.
Trade unions build expectation of inflation into wage demands.
Consumers may make purchases immediately if they believe prices will rise in the future.

14. Case Study
Nestle has reported a 7% growth in the value of confectionary sales over the past three months. The two main reasons are the huge success of its Kit Kat range and the higher prices for most of its products. These higher prices were necessary to cover the higher raw material costs caused by world inflation and the depreciation of the £ sterling exchange rate.
Questions
Would you classify Nestle’s decision to raise prices as being cost push or demand pull?
Is Nestle’s business recession proof?
How could a business like Nestle respond to high inflation?

15. Evaluate the following. business strategies
Evaluate the following business strategies suggested in response to high inflation for Nestle
Cut internal costs to keep price rises down.
Source from cheaper suppliers.
Cut profit margins by not raising prices as much as costs.
Raise profit margins if inflation is due to demand pull pressure.

16. How can the government help?
Interest Rates - By raising interest rates people will save rather than spend and this can reduce demand pull inflation.
Trade Union Legislation - Restricting trade union power by controlling striking and picketing, the chance of cost push inflation is reduced.
Reduce expectations of inflation by the government target of 2% each year - this encourages business and consumer confidence.
What are the benefits experienced by businesses of low rates of inflation?

17. Benefits for Businesses of low inflation
Costs are easier to control.
Pricing strategies are easier to establish.
If inflation rates are lower in the UK compared to other countries businesses experience a competitive advantage.
Sales forecasts will be more accurate.

18. Summary Can you define inflation?
Explain how a price index is constructed
What is the difference between demand pull and cost push inflation?
What are the two different measures of inflation?
What is the impact of high rates of inflation on a business like Ford?
How might Ford react to high inflation?
What action would the government take to reduce inflation?

19. What are the problems with high inflation. http://www. youtube