INFLATION, said Milton Friedman, is always and everywhere a monetary phenomenon. His theory underpinned a belief that to tame price rises all you needed to do was...
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Having come out of a world recession in 2008 where the inflation rate reached a massive 5%, the current 2.7% inflation rate is a success in the eyes of the Bank of England whose target was to reach a 2% inflation rate. For this reason, peoples saving have gained worth again and people are more willing to start borrowing.
The effect of this inflation rate has caused the increase in house prices along with a stronger consumer confidence. However, inflation rates vary from household to household depending on type of household it is. This article proves the importance of weighting when measuring personal inflation as the first chart shows how the inflation varies depending on the product bought. This makes inflation difficult to measure, particularly as our needs as a human race have changed from previous times and generations.
Different sectors of society require different needs. For example, a pensioner uses a different proportion of income on household appliances than, say, a student. Someone's personal inflation rate also changes with age as a first - year university student may have a complete change in their CPI from when they were at school and living at home.
The CPI also cannot measure the change in price due to the quality of a good. Prices for a certain product may rise of fall due to a change in cost of production for the supplier, which would impact the CPI but not give evidence as to why the CPI has changed. Therefore, inflation is difficult to calculate and must be calculated regularly in order to ensure its accuracy.