By: Prescious Ann Joy Eleuterio Lauren Julleza Nicole Aira Bilbao

By: Prescious Ann Joy Eleuterio

Lauren Julleza

Nicole Aira Bilbao

INFLATION

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services.

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services.

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every peso you own buys a smaller percentage of a good or service. 

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every peso you own buys a smaller percentage of a good or service. 

(Investopedia,2013)

CAUSES OF INFLATION

Inflation means there is a sustained increase in the price level. The main causes of inflation are either excess aggregate demand (economic growth too fast) or cost push factors (supply side factors)

Inflation means there is a sustained increase in the price level. The main causes of inflation are either excess aggregate demand (economic growth too fast) or cost push factors (supply side factors)

 Demand Pull Inflation

If the economy is at or close to full employment then an increase in AD leads to an increase in the price level. As firms reach full capacity, they respond by putting up prices, leading to inflation. Also, near full employment, workers can get higher wages which increases their spending power

  Cost Push Inflation

If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS.

Cost push inflation can be caused by many factors

 Rising Wages

If trades unions can present a common front then they can bargain for higher wages. Rising wages are a key cause of cost push inflation because wages are the most significant cost for many firms. (higher wages may also contribute to rising demand)

Import Prices

If there is a devaluation then import prices will become more expensive leading to an increase in inflation. A devaluation / depreciation means the Peso is worth less, therefore we have to pay more to buy the same imported goods.

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