Introduction

Macro – Inflation

In this course, Professor Chris Bowdler (University of Oxford) explores the topic of inflation and price stability. In the first module, we will look at the definition of inflation and the terminology that economists use to describe inflation. Then, in the second module, we will consider the costs of inflation which are the factors that help account for the policy focus on low and stable inflation. Following on from this, in the third module, we will explore the benefits of some positive inflation which are the factors that explain why central banks do not target zero or even negative inflation. In the fourth module, we will focus on some important theories of how inflation is determined, including the Monetarist account of inflation based upon the Quantity Theory of Money. In the fifth module, we look at the Phillips Curve in more detail and present the modern understanding of the Phillips curve equation for inflation. Then, in the final module, we use the Phillips curve as a framework for explaining inflation movements in the UK over the past 50 years.

Introduction

In this module, we look at the definition of inflation and the terminology that economists use to describe inflation. In particular, we will focus on: (i) how the price level is defined as a weighted average of a series of individual prices for specific goods and services; (ii) what the Consumer Price Index (CPI) is; (iii) what the Retail Price Index (RPI) is; (iv) a brief overview of how inflation has varied in the UK in the last 50 years; and (v) definitions of some more key terms, including disinflation, deflation and hyperinflation.