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WorksheetWORKSHEET

Getting Nostalgic for Inflation?

Steep year-on-year increases in RPI inflation have ceased to be the plague that they were from the 1970s onwards for most of the economies of the developed world. But some economists are warning that the world economy could be on the verge of suffering from a prolonged bout of deflation.

This worksheet aims to help you 'brush up' your knowledge and understanding of the topic of inflation. It asks you to search for data from the TimeWeb sample to illustrate your findings; tests your understanding with some questions, and gets you to consider the links from inflation to other economic tools. Finally you are confronted with a deflationary scenario to evaluate.

A quick glance at the following table shows how inflation in the UK has begun to undercut average EU levels over the last years of the 20th century:

HICP Inflation % Change over 12 months
UK:EU 15 1997 - 2000

Year UK EU 15 Average
1997 1.8 1.7
1998 1.6 1.3
1999 1.3 1.2
2000 0.8 2.1

Source: National Statistics

Go to the TimeWeb Explorer (Please note that you will only be able to use the TimeWeb explorer if you study at a UK-based Higher or Further Education college or university) and retrieve data for the inflation performance of the UK and other developed economies (say, USA and France/Germany) over the past twenty years. Use a chart to illustrate your findings.

Now try to answer the following questions:

Q1. What does the RPI measure?
(Select one answer)

(a) * Price increases faced by firms.
(b) * Retail price increases in the economy.
(c) * Changes in the retail price index over a given period.
Q2. What do you think 'deflation' means?
(Select one answer)

(a) * A fall in price levels in the whole economy.
(b) * Consumers feeling 'let down' by the government.
(c) * A fall in economic output.
Q3. HICP is the EU-favoured measure of inflation. What does it mean?
(Select one answer)

(a) * HICP means Higher Incomes Create problems.
(b) * HICP means Harmonised Index of Consumer Prices
(c) * HICP means a hiccup in price movements.
Q4. Why was the EU average rate of inflation higher than that found in the UK?
(Select one or more answers)

(a) * The UK economy was growing at a slower rate than the average EU rate.
(b) * The EU rate of inflation includes some member states whose inflation performance was worse than average.
(c) * The costs of setting up the Single European currency (Euro) added to inflationary pressure.
Click to view your total score for all the above questions that you have attempted.

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