1. What is Inflation? Why is the rising cost of child care an issue?
Starter Activity
Watch the following video
5 mins
What is Inflation? Why is the rising cost of child care an issue?

2. Definition
Inflation measures the rise in general level of prices, generally over a period of 1 year and reflects a fall in the purchasing power of money
Deflation is a fall in general levels of prices over a period of a year and a rise in purchasing power.

3. CPI RPI Measures of inflation
Consumer price index (CPI) measure of inflation- by taking a basket of goods and services (Excluding the cost of mortgages
CPI
Retail Price index (RPI) includes the costs of your home in the basket – so rises in mortgage payments, rents, and council tax, which in real life you pay, get reflected in it.
RPI

4. The basket of goods began life in 1947, as a sample of everyday items1 that could be used to measure changes in the prices of goods and services. This was – and still is – used by us to help calculate consumer price inflation. UK consumers’ shopping habits have evolved over time, so the goods and services in the basket have also changed to ensure it remained representative. The range of products bought by households has grown too, and so has the basket – from around 150 goods and services in 1947 to over 700 today.

6. Its all about Purchasing power
Real income is the nominal income corrected for inflation, focusing on the amount of goods and services which the income can buy.
Its all about Purchasing power

7. Real and Money Changes Worker gets a pay rise of 1%
2 mins
Worker gets a pay rise of 1%
Inflation running at 2.5%
Is the worker better or worse off??
Consider the following example
Real change takes into account the impact of inflation.
A pay rise of 1%, at a time where inflation is running at 2.5% would mean a real wage decrease of 1.5%
“real example – teachers!!”

8. Please watch the below video and consider the question below .
Why is inflation an issue for businesses?
10 mins

9. Issues with Inflation
Businesses find it difficult to plan for the future if prices are uncertain
There are costs associated with constant price changes (Supplies and product sales)
Wage-Price spiral – as prices go up employees demand higher wages, so business put prices up to cover increasing costs and so on……
Spiraling house/property prices – bad for first time buyers – can also give some home owners exaggerated feeling of wealth
Bad for savers – as money in savings accounts loses real value
International Trade – exporters will be affected by high inflation, loss of international competitiveness

10. Causes of inflation Cost-push Demand-Pull
Increasing costs of production will inevitably lead to business putting prices up
Many of these costs of production include commodities such as oil, which have a big influence on prices
Demand-Pull
As demand grows, resources become more scarce and prices rise

11. Task
Exam style questions pg 95