Falling inflation does not mean falling prices!
- Please remember that a fall in the rate of inflation is not the same thing as a fall in prices!
- In 2009 there was a drop in inflation from 5 per cent to 1 per cent over the course of the year. Inflation was falling – but the rate remained positive – meaning that prices were rising but at a slower rate!
- A slowdown in inflation is not the same as deflation!
- For this to happen, the annual rate of price inflation would have to be negative.
How is the rate of inflation calculated?
- The cost of living is a measure of changes in the average cost of buying a basket of different goods and services for a typical household
- In the UK the main measure of inflation is the consumer price index (CPI)
Calculating a weighted price index
- CPI is a weighted price index. Changes in weights reflect shifts in the spending patterns of households in the British economy as measured by the Family Expenditure Survey.
