The Rate of Inflation is the rate at which prices are rising within the economy in general within a one year period. It is regarded as one of the most important economic indicators. Of course, it is not practical to measure changes in price for all goods which are sold within an economy so governments measure inflation by taking a basket of typical goods, products which would regularly be bought by ordinary households within the country, and monitoring prices for the products within it.
Low rates of inflation are today considered normal in the developed world. In modern times, it is almost unheard of for a country to experience deflation, that is a fall in prices. Low inflation is not considered damaging, however. When the rate of inflation becomes high, however, such as into double digits, it is considered to have a very negative effect on the economy. It disrupts existing contract arrangements because prices set in the contracts are no longer worth as much as they seemed to be at the time the contracts were signed. This can worsen industrial relations, provoking demands for pay increases and strike action, for example. High inflation also creates problems for people on fixed incomes, whose real purchasing power is diminished.
Posted on 22 September '08 by admin, under Economy. No Comments.
Consumer spending is a measure of the amount of money used by ordinary people to make purchases in an economy in a period of time. It is one of the most important drivers of a modern economy. Consumer spending is affected by a number of factors. In part, it is seasonal in nature. In Western economies, for example, consumer spending is far higher around Christmas time than at other times of the year. In part, it is affected by the levels of disposable income. Anything which changes the average level of disposable income will ultimately affect consumer spending. For example, if a government raises or lowers taxes, this will result in the ordinary person have more or less disposable income than before. This will shortly feed through to consumer spending levels in the economy. Similarly, a raising or lowering of the prevailing level of interest rates in the economy will affect disposable income through the level of monthly payments which will be required on debt products such as mortgages.
Most importantly, consumer spending is affected by the level of confidence which people have in the economy and in their own personal financial circumstances. In particular, the purchase of large ticket items, such as houses, cars, some white goods, will be swayed by current consumer confidence levels.
Posted on 19 September '08 by admin, under Economy. No Comments.