INFLATION
Main Causes
and Types
I Lead-in.
1) Take
1 minute to think about your associations with the word ‘inflation’ and write
down your ideas.
2) Compare
your lists of associations with other students. What similarities and
differences do you have?
3) Have
you read or watched any news stories about inflation recently? What details do
you remember from the stories about inflation in the news?
|
1.
|
rate |
A.
|
the amount of money
a business spends to do something |
|
2.
|
demand |
B.
|
to be able to deal with
something changing very fast |
|
3.
|
expense |
C.
|
the business of
producing goods in large numbers |
|
4.
|
input |
D.
|
the total amount
that can be produced |
|
5.
|
anticipated |
E.
|
to develop faster
than something else |
|
6.
|
natural disaster |
F.
|
the system of
people and things involved in a product from the place where it is made to
the person who buys it |
|
7.
|
lockdown |
G.
|
income remaining
after taxes that households can save or spend as they wish |
|
8.
|
supply chain |
H.
|
a resource involved
in producing something that has a cost affecting profits |
|
9.
|
bottleneck |
I.
|
the most important
position |
|
10. |
labor shortage |
J.
|
the speed at which
something is changing |
|
11. |
manufacturing |
K.
|
a period of time
when people are not allowed to leave their homes or travel freely |
|
12. |
to outpace |
L.
|
a problem that
delays progress |
|
13. |
supply |
M.
|
connected with
money |
|
14. |
capacity |
N.
|
expected |
|
15. |
disposable income |
O.
|
an amount of
something available |
|
16. |
to keep up |
P.
|
need for something
to be sold |
|
17. |
forefront |
Q.
|
a natural event
such as flood or earthquake that kills or injures a lot of people |
|
18. |
monetary |
R.
|
time when it is
difficult to recruit qualified for jobs |
III Watch the video and fill in the gaps with the words from the list. There are some words you don’t need to use.
expertise; goods and services; economist; demand; expenses;
goods; grandparents; inflation; supply chain; increase; management; raw
materials; manufacturing; economic phenomenon; strong; economically; monetary
phenomenon; traditional economics; lockdown; well-functioning economy
- - Hello Joumanna.
- - Hey Timo.
-
This is Joumanna Bercetche, a CNBC anchor, and our resident monetary
policy and economics whiz. Let's talk about inflation. Why don't we go back to
the basics.
-
Let's do it.
5) ______ ______ would
dictate that there are two main causes for inflation. There is demand-pull
inflation and cost-push inflation. Cost-push inflation happens when business 6)
______ increase, and these extra costs are
passed on to their customers. So with cost push inflation, what happens is that
the price of your inputs or your 7) ______ ______ goes up
over time, and that could be because of anticipated events or unanticipated
events, like say a natural disaster. A good example of that would be say what
has happened to many of the world's economies coming out of 8) ______. On the back of that, we've seen a lot of 9) ______
______ bottlenecks,
we've seen a rise in shipping costs, we've seen in certain areas a labor
shortage, and because of those, the most of those inputs will go into the price
of 10) ______, inevitably that has led to
higher costs.
Then there is demand-pull inflation, which is when the 11) ______ for goods and services outpaces supply. This tends to happen when the economy is 12) ______. Demand-pull is probably a better reflection of what happens when the economy is very close to full capacity. In the case of a very 13) ______ ______, people may feel that they have more disposable income to spend, and therefore demand for 14) ______ ______ ______ may go up. And if companies are operating at full capacity, they won't be able to 15) ______ their production to keep up with that demand. So that could also be inflationary. Some economists also see increasing money supply as another major cause of inflation. Around the 70s, a new type of view came to the forefront. And that was posited by famous 16) ______ Milton Friedman, and his view, and he actually said this, is that inflation, primarily, and everywhere is a 17) ______ ______.
IV Comprehension check. Mark the sentences as True (T) or False (F). Correct the false statements.
2.
Traditional
economics would dictate that there are two main causes for inflation.
3.
There is
demand-push inflation and cost-pull inflation.
4.
Cost-push
inflation happens when business expenses fall, and these extra costs are passed
on to their customers.
5.
With cost
push inflation the price of inputs or raw materials goes up over time.
6.
Price of inputs
or raw materials could go up because of anticipated events or unanticipated
events, like a natural disaster.
7.
Demand-pull
inflation happened when many of the world's economies were coming out of
lockdown.
8.
Lockdown
resulted in a lot of supply chain bottlenecks, a rise in shipping costs, a labor shortage in certain areas.
9.
Due to the negative
effects of lockdown most of the inputs went go into the price of manufacturing,
inevitably leading to higher costs.
10.Demand-pull inflation is when the demand for goods and services outpaces
supply.
11.Demand-pull inflation tends to happen when the economy is weak.
12.Demand-pull happens when the economy is very close to full capacity.
13.In a very weak economy, people have more disposable income to spend, and
therefore demand for goods and services may go up.
14.When companies are operating at full capacity and are not able to
increase their production to keep up with that demand, it could be
inflationary.
15.Some economists see increasing money supply as another major cause of
inflation.
16.Economist Milton Friedman believed that inflation was a monetary phenomenon.
V Vocabulary
focus. Match the words to their definitions. Use three words in your
sentences.
|
1.
|
apparel |
A.
|
likely to change
suddenly and unexpectedly |
|
2.
|
recreational |
B.
|
the change in the
cost of goods and services but not including food and energy sectors |
|
3.
|
caveat |
C.
|
total |
|
4.
|
policymaker |
D.
|
coming from outside |
|
5.
|
core inflation |
E.
|
done for enjoyment
when people are not working |
|
6.
|
volatile |
F.
|
to develop in
particular way |
|
7.
|
exogenous |
G.
|
a warning |
|
8.
|
aggregate |
H.
|
a member of government who is responsible for
making new rules, laws |
|
9.
|
to pan out |
I.
|
clothes |
The most widely used measure of
inflation is an economic indicated/indicator/dictator
called the Consumer Price Index. It's calculated by measuring the century/outage/percentage change in the
price of a basket of selected goods and services a typical household/housework/smallholder uses over a period of time. This
so-called basket can include the price of goods such as food, cars, furniture,
and apparel, as well as the price of services such as rent, medical costs and
recreational spending.
So let's talk about CPI, the costumed/consumer/accustomed price index. During my research, I found that
this is the way inflation is measured across many countries. Let me just caveat
that by saying each country constructs their own CPI basket, so what is in it
is a function of that country's policemen/policymakers/politician. Essentially,
what you want to have is a basket that just reflects people's spending habits,
monthly spending/spent/lending habits.
And so what you put in it is supposed to be a reflection of what a consumer
would typically spend on a month-to-month basis.
Economy/Economics/Economists then take the cost of this basket,
divide it by the cost of basket from the year or quarter they're comparing it
to, then multiply it by 100. This formula calculates the inflation rate/trade/rating we see in headlines.
This is known as headline inflation, but many argue that something called core
inflation is the more valuable metric to follow. What economists try to do is
try to smooth out and remove any of the subcomponents that would be extremely
volatile on a month-to-month basis or have no ultimate reflection on the
strength of the economically/economical/economy. Oil, for example, on any given
month, you can have oil moving up and down because of factual/fractions/factors that are exogenous to how an
economy is operating.
So what economists will do is say,
"Well, we'll look at the headline number to get a feel for how at an
aggregate level price/pricey/pricing
levels are doing." But then if we want to get an idea for the overall
trend of prices, then we're gonna strip out some of those volatile components
and that will give us a better measure of how these inflation numbers are
panning out. Now that we understand what deflation/inflammation/inflation is and why it happens, let’s explore whether it’s
something we should worry about. Ultimately, is it a good thing or a bad thing?
Well, economists have come around to the view that a little bit of inflation is
good.
1.
What is the most widely used measure of inflation?
2.
How is the most widely used measure of inflation calculated?
3.
What does a basket of goods and services include?
4.
What does CPI mean?
5.
How similar is CPI basket for different countries?
6.
What do countries include in CPI?
7.
How do economists calculate inflation? What formula do they use?
8.
What is core inflation? How do economists calculate it?
9.
Is inflation a good thing or a bad thing? How do economists answer that
question?
|
1.
|
to trigger |
A.
|
to influence a
larger area |
|
2.
|
excessive |
B.
|
to be one of the
reasons why something happens |
|
3.
|
to witness |
C.
|
a number that is 10
or greater |
|
4.
|
stockpile |
D.
|
system of
monetary management established the rules for commercial and financial
relations among the United States, Canada, Western European countries,
Australia, and Japan after the 1944 Bretton Woods |
|
5.
|
to spill over |
E.
|
more than normal |
|
6.
|
double digit |
F.
|
to see something
happen |
|
7.
|
chair |
G.
|
amount of money
paid every week to an employee usually in unskilled jobs |
|
8.
|
Bretton Woods Agreement |
H.
|
to cause something
to start |
|
9.
|
to contribute |
I.
|
a person in charge
of an organization |
|
10. |
wage |
J.
|
a large amount of
something |
A.
hyperinflation
B.
recession
C.
inflation
2. Hyperinflation is
when prices spiral out of control, with an inflation rate typically increasing
by more than ______.
A.
80% per month
B.
50% per month
C.
15% per month
3. Many things can
trigger hyperinflation, but it’s most commonly caused by ___ money supply and a
_____ of confidence in the economy or monetary system.
A.
shortage, absence
B.
surplus, growth
C.
excessive, loss
4. For example, the
Weimar Republic, in Germany, after World War I, had average inflation of about
_____.
A.
300 % per month
B.
300 % per year
C.
30 % per month
5. Inflation ______
spill over into hyperinflation territory to cause trouble.
A.
needs to
B.
must never
C.
doesn’t need to
6. In the 1970s, many of the world’s developed economies witnessed _____.
A.
double digit inflation
B. triple digit inflation
C. digital inflation
7. In the 1970s the
U.S. had a couple of supply shocks that
led to _____ inflation.
A. cost pull
B. cost push
C.
costly
8. The energy supply shock that happened around 1973
1974 with the oil embargo, and then the Iranian Revolution in 1979 led to ______.
A.
sky-high rocket prices
B.
sky-high house prices
C.
skyrocketing oil prices
9. At the same time, the
U.S. President Nixon had pulled the US out of Bretton Woods, _______ on certain
goods and in the food space.
A.
removed some price controls
B.
imposed severe price controls
C. removed government control in some states
10.All of these things contributed to ________ in inflation.
A.
a slow and steady fall
B.
a slow and steady rise
C.
a sharp and sudden rise
11.Inflation led to a ____, so workers started demanding an
increase in pay.
A.
wage shortages
B.
supply spiral
C.
wage spiral
12. At one point around 1980, the USA had inflation reach about ____, and the then ___ Paul Volcker said, "Okay, well, inflation is the _____; we've got to cure this."
A.
14%; Fed chair; enemy
B.
40%; head chairperson; sickness
C.
14%; president; worst problem
X Watch the video and put the sentences from the talk in order (for example 1-f).
a)
And that is why, in this day and age, nobody wants to go back to what
happened in the 70s and then the painful trade-offs that ensued afterwards.
b)
That was the trade-off that the country had to make in order to keep
inflation tame.
c)
The Fed started this interest rate hiking cycle, at which interest rates
in the US reached 20 %.
d)
Eventually, they managed to start taming inflation, and inflation went
down to three percentage points by the mid-80s.
e)
The economy had to go through a very painful adjustment period.
f)
And the only way you can cure inflation is by hiking interest rates, so
he kept hiking and hiking, hiking.
g)
It came in a very heavy cost, because there were more than 4 million
Americans unemployed at the time.
h)
Attempts to bring inflation back to tame levels led to an economic
recession in the U.S.
XI Vocabulary focus. Match the words to their
definitions. Use three words in your sentences.
|
1.
|
to hike |
A.
|
a situation in
which you accept something bad in order to get something good |
|
2.
|
to tame |
B.
|
the process of
adapting to a new situation |
|
3.
|
recession |
C.
|
to increase the
cost of something |
|
4.
|
trade-off |
D.
|
to happen as a
result of something else |
|
5.
|
adjustment |
E.
|
a period when the
economy of a country is not successful |
|
6.
|
to ensue |
F.
|
to control
something powerful |
XII Watch the video. Complete the sentences with the words you hear.
XIII OVER TO YOU. Conduct a short online research to find official data on inflation in your country. Discuss the questions with other students.
A) What is the current CPI in your
country?
B) What are the causes of inflation
in your country? Is it demand-pull inflation and
cost-push type of inflation?
C) What steps are policymakers
taking to tackle inflation and avoid its negative impact? What else could be
done to avoid hyperinflation in future?
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