Concept of inflation
It is a continuous rise in prices usually referred to as a trend factor. It can also be referred to as the index number for inflation to occur, the average prices must increase whether other individual prices remain constant or not. Alternatively inflation can be referred to as a situation where demand persistently exceeds supply. Inflation differs from country to country and even within a country itself (National Inflation Association, Para 2).
Inflation can be measured in the following ways;
- Monetary inflation; caused by increase in the increase in the amount of money in circulation in an economy.
- Imported inflation; brought by high propensity to import capital goods.
- Situational inflation; caused by situational factors in the economy.
- Gradual inflation.
- Persistent inflation; brought by forces of supply and demand.
- Hyper inflation; most extreme form of inflation.
Inflation in the US
Inflation in the United States is calculated from the data got from the consumer price index and is collected and compiled by the Bureau of Labor Statistics of the US. The economic financial crisis proved that inflation is a serious issue and can affect the lives of many as seen in the US financial market (InflationData.com, Para 1). The bureau of statistics has compiled data since 1982 using the base of 100 points. The table below shows the inflation rate from the near past to present levels;
Table 1. US Bureau of Labor Statistics data on inflation rates.
The table above represent the inflation rates calculated by using the consumer price index. It can be observed that the US economy is experiencing a relatively low inflation rates ranging from 5% to -0.2%. In the period of 2008 the US economy experienced a negative inflation i.e. there was a decrease in the value of the monetary and other financial capital meaning the economy shrunk 2.10% in July 2009, this contributed to the financial crisis which saw stocks decrease in value and the rates rise. The welfare of inflation is evident in the US inflation rates this year since it scores a positive inflation rate (InflationData.com, Para 2).
The US has been enjoying a low or moderate inflation rates which are characterised by fluctuations in the real demand of goods and services, this enables the US Bureau of Labor Statistics to use price index since it consists of about 95% of the inflation since 1982. It is important to keep the Dollar at a stable rate to prevent hyperinflation.
Conclusions
The inflation rates should be kept low and stable for the economy to enjoy an enabling environment for trade and also enhance predictability in the stock market and the business industry.
Works cited
“Historical US Inflation Rate 1914 – Present”. InflationData. 2010. Web.
“Inflation is the Only Vitally Important Economic Issue”. National Inflation Association. 2010. Web.