This page contains a worksheet on inflation looking at how the recent overall decline in the rate of inflation masks big differences in various areas of spending. WORKSHEET

The 'death' of inflation? Some underlying reasons in the UK economy:

In the UK, since the last re-basing of the retail prices index in 1987, prices have risen by over 70%. This general figure masks some vast differences in the various areas of spending.

International competition appears to be key. Where it is strong, for instance in the market for 'white' goods (household electrical appliances), audio-visual equipment, CDs and tapes, furniture, shoes and women's and men's clothing, prices have either fallen (in the case of audio-visual goods, household appliances and women's clothes) or risen more slowly than inflation as a whole (CDs and tapes, furniture, shoes and men's clothes).

But where governments are able to 'shelter' industries from outside competition, price levels have continued to climb. This is also the case where the state adds to an industry's costs through taxation. The privatised utilities are good examples of the way all recent UK governments have tried to deny this shelter to ex state-owned monopolies in gas, electricity, telecommunications and water. Prices have fallen in all of these cases, with the exception of the water industry.

Successive years' increases in duties on tobacco-related products have led to cigarette prices rising by 190% since 1987 - more than any item in the RPI 'basket'. The cost of personal services to do with providing care for the teeth, eyes, and hair have also been at the forefront of large price rises, as have entertainment, alcohol, car tax and insurance costs and train fares.

Overall, the changes in the inflationary climate can be attributed generally to globalisation, technological change, competition and an anti-inflation attitude. This determination to 'beat' inflation was characterised by the decision of the incoming Labour Government in 1997 to hand control of monetary policy in the UK to the Bank of England.

Now try to answer the following questions:

Q1. What is meant by a 're-basing' of the RPI. (Select one answer) (a) Changing the base year as the point of comparison for the index. (b) Changing the whole way the data is gathered. (c) Changing the country on which the index is based.

---

Q2. Give two example of 'white' goods. (Select one or more answers) (a) Refrigerators. (b) Floor tiles. (c) Cookers.

---

Q3. What was the main cause of the fall in prices of audio-visual equipment? (Select one answer) (a) More TV documentaries being made. (b) Cheaper, more powerful computer equipment. (c) More consumers buying digital cameras and so on.

---

Q4. Why is globalisation one of the main causes of the fall in womens' clothes and household appliances? (Select one answer) (a) Production of these goods was transferred to low-cost centres, often in developing economies. (b) Women like to shop when on holiday. (c) More clothes and appliances are made when the whole world starts producing them, so the price falls.

---

Click to view your total score for all the above questions that you have attempted.

Back to the 'evaluating' review section.