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Introduction
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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.
Hello
00:00:05and welcome to this short series of lectures on inflation and price stability.
00:00:06I'm Chris Bowdler
00:00:12and I'm, associate professor of economics at the University of Oxford.
00:00:14During these talks, I will first focus on the definition of inflation
00:00:19and the terminology that economists use to describe inflation.
00:00:24I will then consider the costs of inflation,
00:00:29which are the factors that helped to account
00:00:31for the policy focus on low and stable inflation
00:00:33and the benefits of some positive inflation,
00:00:38which are the factors
00:00:40that explain why central banks do not target zero or even negative inflation.
00:00:42I will then move on to consider some important theories
00:00:49of how inflation is determined,
00:00:52including the monetarist account of inflation
00:00:54based upon the quantity theory of money.
00:00:57Finally,
00:01:01I will present the modern statement of the Phillips Curve Equation for inflation
00:01:01and use the Phillips curve
00:01:06as a framework for explaining explaining
00:01:08inflation movements in the United Kingdom
00:01:10over the past 50 years,
00:01:13the price level, or index,
00:01:17is defined as the weighted average of a series of individual prices
00:01:19for specific goods and services.
00:01:24The Consumer Price Index, or CPI,
00:01:27uses a basket of consumer goods and services
00:01:30purchased by the typical household.
00:01:34The weights assigned to specific goods in that basket are
00:01:37proportional to the amount consumers spend on the good.
00:01:40For instance,
00:01:44if 1% of consumers weekly shopping basket
00:01:45is spent on bread,
00:01:49then the price of bread
00:01:50will feature in the CPI
00:01:52with a weight of 0.1.
00:01:54The retail price index, or RPI,
00:01:58is closely related to the CPI
00:02:01but adds to the consumer basket of goods and services.
00:02:04A number of items related to what families spend on accommodation costs.
00:02:07Inflation
00:02:14is the percentage change in the price level, or index over some unit of time
00:02:15E g. One year. In the case of the annual inflation rate,
00:02:20the chart displays RPI inflation for the United Kingdom since the late 19 forties.
00:02:25Observations are recorded monthly,
00:02:32so the observation for January 1990 is the percentage growth
00:02:34in the price level from January 1989 to January 1990.
00:02:39The observation for February 1990 is the percentage growth
00:02:46in the price level from February 1989 to February 1990
00:02:50so on.
00:02:55As you can see,
00:02:57inflation has varied considerably since the Second World War,
00:02:58with inflation peaking at more than 25% during the 19 seventies,
00:03:02an episode that I will be discussing in more detail in a later lecture.
00:03:08Disinflation is an episode of falling inflation,
00:03:14for instance, as observed in the United Kingdom in the early 19 eighties,
00:03:18when the government,
00:03:23led by Margaret Thatcher made a concerted effort to
00:03:24reduce price inflation to its pre 19 seventies level.
00:03:27Deflation
00:03:33is an episode of negative inflation rates
00:03:34and therefore falls in the price level.
00:03:37For instance,
00:03:40as in the United Kingdom following the impact of the 2008 global financial crisis,
00:03:41hyper inflation
00:03:49is an episode of extreme inflation,
00:03:50typically
00:03:53above 50% per month.
00:03:54Such inflation has not been observed in the United Kingdom,
00:03:57but was experienced in several central European countries during the 19 twenties
00:04:01and in some Latin American countries during the 19 eighties.
00:04:07That concludes this short introductory lecture,
00:04:13and in the next lecture
00:04:16I shall examine the costs associated with inflation
00:04:17
Cite this Lecture
APA style
Bowdler, C. (2022, December 02). Macro – Inflation - Introduction [Video]. MASSOLIT. https://massolit.io/courses/macro-inflation/the-phillips-curve
MLA style
Bowdler, C. "Macro – Inflation – Introduction." MASSOLIT, uploaded by MASSOLIT, 02 Dec 2022, https://massolit.io/courses/macro-inflation/the-phillips-curve