A Closer Look at Inflation: Understanding the Consumer Price Index
A slowing inflation rate does not mean prices are dropping but are rising slower, according to economist Cheta Nwanze, adding that inflation is often misunderstood.
“Inflation, Consumer Price Index, is not a measure of whether things are getting cheaper,” Nwanze explains. “When you talk with so many people in this country about inflation slowing down, they expect that prices will start dropping. But that’s deflation, not inflation. Inflation measures the rate at which prices rise.”
The concept of deflation—when prices decrease—is rare.
“It’s only probably two countries in the world right now that are experiencing what we call deflation: Japan and Germany. But in economic terms, deflation is not good. It means companies won’t get profits, and businesses don’t like that.”
Germany’s cautious approach to inflation is a case study, emphasising its history where inflation once led to social unrest. This highlights the broader economic and political effects of inflation, demonstrating that it is not just an economic statistic but a factor influencing governance and stability.
Another crucial issue remains whether wages keep up with inflation, adding that the disconnect between rising prices and stagnant wages creates financial strain for many, making it an ongoing concern in global economic discussions.
Ultimately, inflation is a constant, with the real challenge being how economies manage it to maintain stability and growth while ensuring wages keep pace with rising costs.
