1 A LA CARTE
Inflation
WORKSHEET
What is inflation? Inflation measures the rise in the level of prices of goods and services over a period of time. Inflation means a decline in the value of money. In other words, you can buy less for the same amount of money.
What are the effects of inflation? For the economy, inflation generally becomes a problem when it is very high or unpredictable. High inflation impairs the role of money as a store of value and a means to compare prices. When the value of money decreases, a shift from creditors to debtors can be observed. If wages are not adjusted, their value will decrease as well. Unpredictable inflation renders consumption and investment decisions more difficult. A low and steady inflation of between 0% and 2% is normal and has almost no negative effects.
How is inflation measured? In Switzerland, inflation is measured using the national consumer price index (CPI). The CPI is calculated on the basis of a fixed list of items, referred to as a basket of goods, which reflects the consumer habits of an average Swiss household. On a monthly basis, the Swiss Federal Statistical Office determines the price of this basket of goods. The CPI is calculated using a base date. At the moment, this base date is December 2005. The current price of the basket of goods is compared with the price of the same basket of goods in December 2005 (base date = 100). The inflation rate corresponds to the percentage rise of the CPI compared with the previous year. Example: CPI for April 2008 = 103.6 (December 2005 = 100) CPI for April 2007 = 101.3 The same basket of goods was 3.6% more expensive in April 2008 than in December 2005. To calculate inflation for April 2008, the CPI for April 2008 is compared with the CPI for April 2007. An inflation of (103.6 – 101.3) ÷ 101.3 = 2.27% for April 2008.
Is inflation the same for everybody? The consumer price index states inflation for an average Swiss household. If the consumer habits of an individual deviate significantly from the average consumption behaviour and thus from the basket of goods on which the index is based, this person might experience a different change in the cost of living (= individual inflation).
July 2009
F U R T H E R I N F O R M AT I O N A VA I L A B L E AT W W W. I C O N O M I X . C H
2 A LA CARTE Inflation
WORKSHEET
T EST Q U ES TIO NS
1. List some of the products that have recently become more expensive. What does this mean for your everyday life?
2. Are there any products that have become cheaper?
July 2009
F U R T H E R I N F O R M AT I O N A VA I L A B L E AT W W W. I C O N O M I X . C H
3 A LA CARTE Inflation
WORKSHEET
3. The chart below shows price changes in the basket of goods of an average Swiss youth. Calculate the price index for this basket of goods for April 2007 and determine the inflation rate.
A B C D E F G H I J K L M –8% –6% –3.3% –4% –2% 0% –5.5% 0.9% 0.8% –7.6% –1.2% 0.6% 0.3%
1.5% 1.0%
3.5% 2.7% 1.9%
2%
4%
Price changes in percent between April 2006 and April 2007
Going out (bars, clubs, cinema) Eating out, during the day Clothes and shoes Body care products, cosmetics Sport and hobbies Travel, holidays and short trips Mobile phone, telephone
Bicycle, scooter, motorbike, car Gifts, donations Magazines, books CDs, DVDs Furnishings Computer and video games
April 2006 Total expenses Price index CHF 673 100 (base figure)
April 2007 CHF 674.30
Inflation rate =
Source: Bamert, T. and P. Oggenfuss (2005), Ausgabenverhalten von Jugendlichen, University of Zurich.
July 2009
F U R T H E R I N F OW E IA T IROEN I A V A I L A B L E RA T W W . W C I C O N OIM I C HC H RM TE NFOS UNT W WW I . ONOM X.X.
4 A LA CARTE Inflation
WORKSHEET
4. What does this inflation rate tell you? Answer this question in one sentence.
The à la carte component on purchasing power (currently only available in German) is also suitable for use in connection with the mySchool film on buying.
July 2009
F U R T H E R I N F OW E IA T I O N I A V A I L U B L E RA T W W . WC I C O N OIM . C H C H RM TERE NFOS ANT W WW I .ONOM XIX.