The Consumer Price Index for August was announced yesterday as 1.6%, the lowest it has been since January 2005.
The RPI gave slightly cheerier news as it rose from -1.4% to -1.3. The Guardian has updated its interactive data on inflation.
This BBC article explains why the CPI has fallen.
Questions
1. Using the BBC article state two reasons for the CPI falling to 1.6% in August 2009. (2)
2. Explain what is meant by the term cost push inflation. (2)
3. Explain how inflation is measured. (3)
4. Using the Guardian’s interactive data describe the trend in inflation between August 2008 and August 2009. (3)
5. Interest rates are currently at 0.5% and it is assumed that they cannot go any lower. Evaluate policies the government could use to encourage inflation towards the target of 2.0%. (8)
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