Inflation
| English | Chinese | Pinyin |
|---|---|---|
| inflation | 通货膨胀 | tōng huò péng zhàng |
| general price level | 一般物价水平 | yì bān wù jià shuǐ píng |
| Consumer Price Index | 消费者价格指数 | xiāo fèi zhě jià gé zhǐ shù |
| demand-pull | 需求拉动 | xū qiú lā dòng |
| cost-push | 成本推动 | chéng běn tuī dòng |
| savings | 储蓄 | chǔ xù |
| deflation | 通货紧缩 | tōng huò jǐn suō |
When money buys less each year
- A loaf that cost a little last year costs a little more this year. Multiply that across everything, every year, and you have inflation 通货膨胀.
- It quietly eats away at what money is worth.
Inflation is:
Inflation is a sustained rise in the overall price level.
The CPI rises from 100 to 105 over a year. What is the inflation rate (%)?
(105 − 100) / 100 × 100 = 5%.
Inflation is commonly measured using the Consumer Price ______.
The CPI tracks a basket of typical goods.
What inflation is
- Inflation = a sustained rise in the general price level 一般物价水平.
- It is measured by the Consumer Price Index 消费者价格指数 (CPI), which tracks the price of a typical "basket" of goods.
Inflation has two main causes: demand-pull and cost-push
Demand-pull inflation
When aggregate demand rises faster than supply, the price level is pulled up — that is inflation. Push demand and watch prices climb.
Inflation caused by rising wages and raw-material costs is:
Rising costs push prices up — cost-push inflation.
Two causes
- Demand-pull 需求拉动: demand grows faster than supply, pulling prices up.
- Cost-push 成本推动: rising costs (wages, raw materials) push prices up.
Worked example. If the CPI rises from 100 to 104 over a year, inflation is 4%. Prices, on average, are 4% higher than a year ago.
If inflation falls from 5% to 2%, prices are still rising.
Prices rise more slowly; they only fall when inflation is negative.
Why inflation matters
- It erodes savings 储蓄 and fixed incomes, and creates uncertainty for firms.
- A little (low, steady) inflation is normal; high inflation is damaging, and falling prices (deflation 通货紧缩) can be worse.
Inflation falling ≠ prices falling. If inflation drops from 5% to 2%, prices are still rising — just more slowly. Prices only fall when inflation goes negative (deflation).
You've got it
- inflation = a sustained rise in the general price level, measured by the CPI
- causes: demand-pull (too much demand) and cost-push (rising costs)
- it erodes savings and fixed incomes; deflation (falling prices) can be worse