JUNIOR CYCLE BUSINESS STUDIES Calculating the Rate of Inflation
The percentage change in the price of goods and services in a period of time is known as the rate of inflation.
The rate of inflation is calculated as follows: Rate of inflation = Example
Find out the current rate of inflation in Ireland. Record it in the Economy Watch section of your
Activities and Accounts Book and monitor it.
In the case of the basket of groceries on the previous page, the rate of inflation would be calculated as follows:
(62.45 – 56.50) 56.50
× 100 = 10.5%
The rate of inflation on the basket of groceries between January 2015 and January 2016 was 10.5%.
It is important to note that the rate of inflation can fall as well as rise. If it falls below 0% (a negative inflation rate), it is known as deflation.
Calculating the rate of inflation A
Go to page 220 of your Activities and Accounts Book to practise calculating the rate of inflation.
(Cost of living in year 2 – cost of living in year 1) Cost of living in year 1
× 100
Causes of Inflation A rise in the price of goods and services can occur for a number of reasons, including:
• Demand for a product is greater than supply (e.g. more people want to attend a rugby final than there are seats in the stadium).
• The cost of raw materials increases (e.g. if the cost of cocoa increases, chocolate manufacturers are likely to increase prices to ensure their profit is not reduced).
• Labour costs increase (e.g. when the minimum wage increased to €9.15, some businesses increased their prices to cover the extra cost of wages.)