1.2 External influences: inflation

Question 1

What is inflation?

Answer 1

A sustained increase in the general level of prices for goods and services. As inflation rises, every pound you own buys a smaller percentage of a good or service.
For example: Fredo’s were 15p and now have risen to more than 25p

Question 2

What is the potential impact on customers of inflation?

Answer 2

• They wouldn’t spend much money on luxurious items because prices are too high (if wages don’t rise)
• Less disposable income

Question 3

What is the potential impact on businesses of inflation?

Answer 3

• People wouldn’t spend money and businesses wont have a higher income of money
• If businesses are paying more money to the employers then the business will have no money
• Money is worth less when the inflation rate rises

Question 4

What is CPI?

Answer 4

Consumer price index

Question 5

What is RPI?

Answer 5

Retail price index

Question 6

How is RPI different to CPI?

Answer 6

RPI= About firms
CPI= Includes a measure of owner occupiers housing, rose to 2.5% in July & it is about people

Question 7

What is a demand pull?

Answer 7

This means buyers want to buy more than sellers can actually produce; so sellers start to put prices up. So demand pulls the price up

Question 8

How does the demand pull cause inflation?

Answer 8

People want the product, so they make the price higher as they know people will pay that higher price

Question 9

What is the cost push?

Answer 9

This means businesses costs start to rise (eg. oil prices or wages start to rise) and sellers need to put prices up compensate. So costs to the business, PUSH the prices higher

Question 10

How does the cost push cause inflation?

Answer 10

Prices will increase for many products

Question 11

What is CPIH?

Answer 11

“Consumer price inflation including owner-occupiers’ housing costs”