Understanding Inflation

Inflation is another key macroeconomic indicator which illustrates the rate at which prices are increasing. A negative inflation rate would suggest that prices are decreasing whilst a positive inflation rate implies that prices are rising. Typically, there are 2 forms of inflation:

• Cost-Push inflation: Refers to the increase in prices of goods due to increases in the price of raw materials – An example of this includes the increase in fuel prices due to the war in Ukraine.
• Demand Pull inflation: This refers to an increase in the price of goods due to excessive demand within an economy. This usually arises due to high consumer confidence within markets.   

Inflation, just like GDP and GNP, is used to calculate the national income as well as determine the overall health of the economy. These key indicators allow governments, central banks and economists to create goals and objectives for their respective nations and also compare themselves against other economies.