Inflation is as much a word you’ve heard in the news recently. Let’s look at the definition first.
Inflation in general means an increase in price levels. For example, if someone goes grocery shopping and says, “Prices have gone up a lot,” that means inflation.
If inflation means inflation, how do you measure the price that’s the basis? The most representative method of measuring prices is the consumer price index (CPI).
The Consumer Price Index is the price you measure by calculating the average price of goods and services that you buy on the market as a consumer. Suppose you always put bottled water, milk, eggs, bread, rice, ramen, chicken, and mackerel in your shopping cart whenever you go to the mart. Every time we shop, the receipt will show the price of bottled water, milk, eggs, bread, rice, ramen, chicken, and mackerel, right? And you can track how the price of each product has changed as one or two receipts pile up.
The consumer price index measures in a similar way. The consumer price index is the value that people typically choose the products they buy the most and make their price change an index. In Korea, the National Statistical Office calculates the consumer price index every month. As of 2015, a total of 460 representative items were selected and the consumer price index was calculated by regularly tracking their price changes.
In addition to inflation, the term often used is inflation rate. It is calculated as the rate of increase in how much prices have changed. Last year’s Consumer Price Index, released by the National Statistical Office, was 100, and if this year’s Consumer Price Index was 103, the inflation rate would be 3%.
However, there is something to be careful about. The inflation rate could be negative. If prices have fallen this month compared to last month due to the economic recession, the inflation rate is negative (-). This drop in prices is called deflation.
In summary, inflation is an indicator of whether prices are rising or falling. It’s called positive inflation, negative deflation.
