An increase in general prices for goods and services is referred to as Inflation. If an inflation is to be considered, then the rise in prices must be widespread and occur over an extended time frame. In simple words, reflect changes in the economy as a whole must be reflected by the rise in prices. The value of money is reduced by the inflation. When inflation prevails in an economy, then for the same goods consumers have to spend more money and services they were previously able to purchase at lower prices.
Methods of Measuring Inflation
In order to measure inflation there are several methods.
The Consumer Price Index (CPI)
The most common measurement is the Consumer Price Index (CPI). As suggested by the name, by the CPI inflation is measured in terms of consumer prices.
Gross Domestic Product Deflator (GDP-Deflator)
Gross Domestic Product Deflator (GDP-Deflator) is another common method for measuring inflation. By the GDP-deflator inflation is assessed in the overall economy as it affects all branches of government and business, as well as consumers.
