Exploration of Government Policies to Achieve the Inflationary Target
The aim of this essay is to explain to the reader what is meant by the
term ‘inflation’ and to outline the policies used by the government to
achieve its inflationary target. To help me achieve my aim I am going
to use various resources throughout the essay, this includes slides
provided during lectures, materials received in tutorials and internet
sites with the relevant information for me to complete my aim.
Inflation is the increase in the costs to produce a product. When
these costs rise, the value of money falls, meaning that when there is
inflation our money buys us less. There are many different types of
inflation and examples of these are demand pull inflation and cost
push inflation.
The control over inflation has become one of the government’s main
objectives. There can be lots of different reasons for inflation such
as excess demand for goods and service or cost-push inflation, etc.
To help control this, different policies have been set to help the
government achieve the inflationary target. However it is not that
easy to predict inflation. Many different decisions are made by large
or small businesses every day that could affect inflation such as an
increase in selling price or a change in import or export of goods.
Also a change in inflation abroad can affect the UK if goods are being
imported from that country, often a higher payment will be needed to
pay for the import and this raises production costs for the UK.
Inflation measures the annual rate of change of the general price
level in the economy. One way of measuring inflation is RPI, retail
price index. This measures how the price of household goods has
changed over a certain period. Each item is given a ‘weight’ to
calculate the percentage of RPI. I have taken the table from the
lecture slides to give an example of goods RPI weights.
(1) RPI WEIGHTS