Inflation Vocabulary

Flashcards about Inflation

Inflation

Occurs when there is a general or overall sustained rise in the prices of goods and services in an economy or a declining purchasing power of money.

Consumer Price Index (CPI)

The most widely used measure of inflation in Australia, calculated by the Australian Bureau of Statistics (ABS) and published once a quarter.

Inflation Rate (%)

Calculated as (CPI year2 - CPI year1) / CPI year1 * 100

Headline Inflation

The 'official' rate of inflation that does not allow for any exclusions owing to volatility or the impacts of one-off factors

Underlying (or Core) Inflation

A measure of inflation that removes one-off and seasonal or volatile factors.

Trimmed Mean Inflation

The average rate of inflation after ‘trimming’ away the items with the largest price changes (positive or negative).

Weighted Median Inflation

The inflation rate of the item at the middle of the price changes in the CPI basket, measured at the 50th percentile by weight.

Demand-Pull Inflation

Occurs when aggregate demand or spending is growing while the economy is nearing full employment.

Cost-Push Inflation

Occurs when there is an increase in production costs (such as oil price increases/wage increases).

Inflationary Expectations

Occurs when individuals or firms in an economy expect higher future inflation, and they act in a way that causes an increase in inflation in the present.

Imported Inflation

Caused by higher import prices, which increase the inflation rate, and a depreciating $A will also lead to an increase in the price of imports, increasing inflation.

Sticky Inflation

Inflation that takes longer than expected to come down, happening when the CPI remains high despite macroeconomic policies to lower them (e.g., interest rate rises).

Deflation

A sustained decrease in the general price level of goods and services in an economy.