What is Inflation

What is Inflation
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Inflation is the systematic increment in the prices of goods and services within the country and it is measured annually in percentage. Gross Domestic Product is the sum of all the outputs of a country irrespective of who is producing the commodity. The national living standard of a nation is measured by summing this output. This method though is not good for measuring the living standards of a nation since it does not take into account the persons producing the commodities. GDP per capita is a better method of measuring the living standards since it divides the GDP sum amongst all the citizens. In this case, it shows the average living standard while GDP only measures the living standard irrespective of the number of people adding up in the sum. A country like China for example has high GDP because of the many companies but when per capita GDP is calculated, the average becomes lower. Per capita GDP is the best method since it gives the average of what every citizen is likely earning.

There is a very slight difference between Consumer Price Index and Gross Domestic Product and many people do confuse them in relation to inflation. Despite this, there is difference between the two. They are methods of determining price inflation in relation the economy of a particular country. GDP deflector mainly accounts for the goods produced locally. Not anything produced outside the country even if the citizens of that particular country are the ones producing it, are included in the calculation. It does not account for the imported goods but reflects the cost of products produced locally with services included. On the hand, Consumer Price Index is the average change in prices of a constant quality product over a given period. Its difference with GDP is that, it is calculated by enchanting the price change over of goods in the predetermined basket and coming up with the average. The successive changes in the CPI is what helps in assessing the inflation rate in the nation.

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