3. What is inflation? Inflation occurs when there is an increase in the general level of prices from one year to the next. In Ireland, inflation is measured using the Consumer Price Index (CPI).
Governments try to maintain a consistent level of inflation as it makes it easier for households, businesses and governments to budget and plan for the future. A consistent inflation rate of 2% is considered to be a normal rate of inflation.
Inflation rates were very high. One of the main causes was the rapid increase in global oil prices.
1980s:
Inflation fell as economic activity slowed down.
1990s: In the late 1990s inflation began to rise as the economy began to expand rapidly. Demand for labour exceeded the supply of labour and led to wages and business costs rising.
Calculating the Rate of Inflation Example:
Price of goods in Year 1 = €100 Price of goods in Year 2 = €103
Formula: Change in price of goods
–––––––––––––––––––– X ––––– = –––– X ––––– = 3% Price of goods in Year 1
100 1
384 100
100 1
3
2000s:
Ireland joined the Eurozone which has a policy of keeping inflation low.
