Inflation
Inflation is an upsurge in the level of prices of the goods and services in an economy, which leads to a decline in the purchasing power of the currency’s value. It is calculated as the rate of change in prices in a specific period of time. The consumer price index (CPI) is one of the most common indicators for measuring inflation in an economy.
Factors that Impact Inflation Rate
Some of the major factors affecting consumer prices are government policies, money supply, consumer spending, employment levels, high disposable income, and wage levels. Interest rates can also have a significant impact on spending on consumer goods.
Global Inflation
Global inflation is a measure of the average annual rate of growth increase in national prices across all countries. It can be calculated using various methods including simple average, weighted average, and median price change. GlobalData forecasts that the world economy will grow at a slower pace of 3.5% in 2022 following a 5.9% growth in 2021. The global inflation rate is projected to rise in 2022 due to supply chain disruption amid the Ukraine-Russia war.
Consumer Price Inflation in Germany
Between 2010-2021, the consumer price inflation in Germany was highest in the year 2021, reaching 3.1%. Germany reported a sharp decline in the inflation rate between 2018-2020.
Inflation rose to 1.1% in 2010, mainly due to an increase in heating oil and motor fuel prices. The inflation rate jumped to 2.1% in 2011 due to a 10% increase in energy prices from the previous year. In 2012, inflation, at 2.0%, remained near the central bank’s target range, with a slowdown in prices witnessed in the second half of the year. Consumer prices continued their downtrend in 2013 due to lower energy and commodity prices in euro terms, a result of a stronger euro compared to 2012. In 2014, due to a fall in energy prices, inflation fell to 0.9%. In 2015, inflation was recorded at 0.5%, due to a continuous fall in energy prices. Germany’s inflation stood at 0.5% in 2016 and rose to 1.5% in 2017.
According to GlobalData, inflation cooled down to 1.5% in 2019 due to the decrease in fuel prices, slowdown of house rent expenses and moderate level of food inflation. In 2020, inflation went down to 0.6% because of lower demand of goods and services which dampened consumer sentiment.
Rising Inflation and Interest Rates:
As a result of rising inflation rates in both developing and advanced economies, central banks have been forced to tighten monetary policy and raise interest rates to keep prices from rising. However, a steady increase in interest rates could cause financial distress in some economies.
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