Unanticipated Inflation Arbitrarily (FIND THE ANSWER)
Inflation has been a long-standing issue for economies around the world. It is the steady rise of prices of goods and services over a period of time, which in turn reduces the purchasing power of an individual’s income. Unanticipated inflation is an inflation that is not expected and can be arbitrary in its rise. It is a more severe form of inflation than anticipated inflation, which can be taken into account when planning. But what causes unanticipated inflation and how is it measured? Let’s take a look.
Causes of Unanticipated Inflation
Unanticipated inflation is usually caused by some type of shock to the economy. Examples of such shocks could be an oil crisis, a sudden increase in world commodity prices or even an economic depression. These unforeseen events can lead to an increase in the demand for goods and services, which in turn creates an environment of higher prices. The cost of production will also rise, meaning the price of goods and services will increase even further.
Another cause of unanticipated inflation is when there is an increase in the money supply in the economy. This is known as ‘monetary inflation’ and is a result of the central bank printing more money. This increase in the money supply leads to an increase in demand for goods and services, resulting in higher prices.
Measuring Unanticipated Inflation
Unanticipated inflation is measured using the Consumer Price Index (CPI). The CPI tracks the average price of a basket of goods and services, which is used to measure the overall cost of living in an economy. It is calculated by taking the weighted average of prices across different categories, such as food, housing, transportation and so on. The CPI is then compared to previous periods to determine whether there has been an increase in the prices of goods and services for consumers.
It is important to note that the CPI measures prices and not inflation. To calculate inflation, the CPI is compared to a base year. The difference between the two is then used to measure the rate of inflation.
Conclusion
Unanticipated inflation is an unexpected increase in prices of goods and services that can have serious consequences for an economy. It is measured using the Consumer Price Index, and is usually caused by some type of shock to the economy, or an increase in the money supply. Understanding the causes of unanticipated inflation, and being able to measure it, are essential for establishing sound economic policy.