Question

Inflation

• How do economists measure inflation? Did the CPI recently increase or decrease? Visit the Bureau of Labor Statistics website and explore the Consumer Price Index section. Summarize the latest press release and explain what caused the index to increase or decrease. (You can also talk about COVID-19)

Answer 1

Inflation is measured as the general price rise in any economy. As a result of normal demand and supply it is expected that some inflation may indeed take place in any economy and is natural in nature. The general Inflation level which is acceptable is thought to be around 2% in the United States.

The measure of Inflation is Consumer Price Index which is a basket of commodities that are regularly bought and sold in the market. The economists analyse the changes in price of these goods to analyse the effects on the economy and the resulting inflation or deflation if any.

The CPI reported for March 2020 was -0.4%. The core reason for this was no industrial activity and reduced consumer demand for goods and services alike. The fact that decreased the same as per the press release of the Labour Statistics bureau is the fact that the country has remained in lock down for a really long period and this in turn has made demand absolutely stop.

To recover from losses, sellers are selling their produce at way lesser prices in the market as they expect the lock down to extend and do not have sufficient money to be able to pay costs of rent, labour etc.

Therefore, the Consumer Price index has gone down so much and the economy is expected to be in a recession. This has extended across the globe and will only grow as time passes and the economies remain shut.

Please feel free to ask your doubts in the comments section if any.