Economics Inflation Notes Zimbabwe

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INFLATION
MR KAYBEE

Inflation refers to a persistent increase in the general price level in a country. It refers to the rate of increase in the general price level and not a price increase per se or to a one-off increase in the price level. Inflation has the effect of eroding the purchasing power of money.

Degrees of inflation
- Creeping inflation - low and stable rate, of for instance $2 \%$, is generally regarded not to be a problem. Indeed, seeing a low and steady rise in prices may encourage firms to produce more.
- Hyperinflation- an exceptionally high rate of inflation, which may result in people losing confidence in the currency. This is often taken to be an inflation rate that exceeds $50 \%$ but it can go much higher. At the start of the twenty-first century, Zimbabwe experienced an inflation rate so high that economists had difficulty measuring it. It has been estimated that it reached in 2008 anywhere between 200 million per cent and 89 sextrillion per cent. Hyperinflation occurs when inflation gets out of control and sometimes results in people resorting to barter. In such cases the currency usually has to be replaced by a new currency unit.
- Stagflation- high inflation accompanied by high unemployment.

Measuring inflation - Calculating the consumer price index (CPI)
※ An index that shows the average change in the prices of a representative basket of products purchased by households.
* CPI is a statistical device that indicates the price level at any given time as compared with the level of prices at some standard time called the base.