1. Inflation and CPI What is happening with prices?
Inflation rate is needed to find Real GDP
Calculate the CPI (consumer price index) in order to calculate the rate of inflation

2. Definitions Inflation = average prices are increasing
Goods and services become too expensive
Deflation = average prices are decreasing
Producers aren’t making as much profit
Stagflation= prices and unemployment are rising simultaneously
Double economic nightmare as goods cost more and more people are out of work
Hyperinflation=extreme rise in prices

3. Zimbabwe

4. Hyperinflation Examples
Germany (1923) 29,500 % inflation rate ; prices doubling every 3.7 days
Zimbabwe (2008)- 79 billion % Loaf of bread cost 35 million
Hungary 1946 – 13.6 quadrillion prices doubled every 15 hours
Venezuela- current almost 1 million percent . Prices doubling every few weeks 20 Million bolivars for fast food meal
For one dozen eggs in Venezuela; You can buy 101 dozen eggs in the U.S. for the same price
Minimum wage equal to around $1.61USD

5. Inflation Inflation affects people’s purchasing power
People on fixed income are hurt most
Workers who receive cost-of-living increases (COLA’s) aren’t
When making loans at fixed rates, an unanticipated rise in price level by more than the lender anticipated hurts the lender since the money repaid will have less purchasing power.
Borrowers who borrow at fixed rates will benefit from unanticipated inflation. Their interest rates remain stable as price rise and they pay back their loan with money that has less purchasing power than the money they borrowed.

6. Consumer Price Index
CPI measures the price change of a selected group of consumer goods and services overtime.
Thousands of goods and services are selected and placed in what is called a “market basket.”
Each month the “market basket” is checked to see if the overall price of the basket has increased or decreased.

7. CPI and Inflation
CPI is calculated by looking at a base year’s prices and comparing to current year’s prices
CPI = cost of market basket in year looking for x100 = CPI for year look for
cost of market basket from base year
CPI = = x 100 = 104 (CPI)
960
To figure out inflation between the two years-
100(base always 100) To 104 (CPI) = 4% increase = 4% Inflation

8. Fred CPI Statistics

9. Practice
2010= $1455
2015= $1600
CPI=
Inflation Rate=

10. Practice
1960= 710
2000= 1145
CPI=
Inflation Rate=

11. 1977= 1035 2015= 1195 CPI= Inflation Rate=

12. 2013= 1365
2015= 1360
CPI=
Inflation Rate=