Inflation Rate Explained

Everyone is always talking about the Inflation rate, and making a big fuss about it. But there are many who just nod along not fully understanding why there is such a big concern.
So what exactly is inflation?

Inflation is basically the rate at which the prices of a country’s goods and services change each year. So if the inflation rate is 7%, that means that the price of certain goods has increased by 7% from one year to the next.

A few common abbreviations which normally go along with an ‘inflation discussion’ are:
CPI (Consumer Price Index): This index shows the changes in prices of goods and services.

PPI (Production Price Index): this measures changes in production prices of locally produced and imported commodities. So if the price of goods is rising by 7% each year, then salaries would have to rise by the same percentage so people can continue their current standard of life.

But if companies raise the salaries they pay their staff, then they would be forced to raise the prices of their products to still make a profit. This all causes inflationary pressure, and could lead to an inflationary spiral which is something that all governments are fearful of, and do their best keep in check.

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