EURO is worth less

In a market economy, prices for goods and services can always change. Some prices rise; some prices fall. One speaks of inflation if there is a broad increase in the prices of goods and services, not just of individual items. As a result, you can buy less for €1 (one euro). Expressed the other way around, a euro is worth less than it was before. 

Some price changes are more important than others

When calculating the average increase in prices, the prices of products we spend more on – such as electricity – are given a greater weight than the prices of products we spend less on – for example, sugar or postage stamps.

Different people buy different things

Every household has different spending habits: some have a car and eat meat, others travel solely by public transport or are vegetarian. The average spending habits of all households together determine how much weight the different products and services have in the measurement of inflation.

For measuring inflation, all goods and services that households consume are taken into account, including:

•     everyday items (such as food, newspapers and petrol)
•     durable goods (such as clothing, PCs and washing machines)
•     services (such as hairdressing, insurance and rented housing)

Compare the price of the shopping basket from year to year

All the goods and services consumed by households during the year are represented by a “basket” of items. Every product in this basket has a price, which can change over time. The annual rate of inflation is the price of the total basket in a given month compared with its price in the same month one year previously.

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Ditulis oleh William Perkasa pada tanggal Thursday, July 4, 2013