INFLATION

Main Causes and Types

https://allprofessionalenglish.blogspot.com/2022/04/inflation-main-
causes-and-types.html

I Lead-in.
1) Take 1 minute to think about your associations with the word ‘inflation’ and write
down your ideas.
2) Compare your lists of associations with other students. What similarities and
differences do you have?
3) Have you read or watched any news stories about inflation recently? What details do
you remember from the stories about inflation in the news?

II Vocabulary focus. Match the words to their definitions. Use three words in your
sentences.
1. rate A. the amount of money a business spends to do something
2. demand B. to be able with something changing very fast
3. expense C. the business of producing goods in large numbers
4. input D. the total amount that can be produced
5. anticipated E. to develop faster than something else
6. natural disaster F. the system of people and things involved in a product from
the place where it is made to the person who buys it
7. lockdown G. income remaining after taxes that households can save or
spend as they wish
8. supply chain H. a resource involved in producing something that has a cost
affecting profits
9. bottleneck I. the most important position
10. labor shortage J. the speed at which something is changing
11. manufacturing K. a period of time when people are not allowed to leave their
homes or travel freely
12. to outpace L. a problem that delays progress
13. supply M. connected with money
14. capacity N. expected
15. disposable O. an amount of something available
income
16. to keep up P. need for something to be sold
17. forefront Q. a natural event such as flood or earthquake that kills or
injures a lot of people
18. monetary R. time when it is difficult to recruit qualified for jobs

III Watch the video and fill in the gaps with the words from the list. There are some
words you don’t need to use.

expertise; goods and services; economist; demand; expenses; goods; grandparents;

inflation; supply chain; increase; management; raw materials; manufacturing; economic
phenomenon; strong; economically; monetary phenomenon; traditional economics;
lockdown; well-functioning economy

Ever wondered how your 1) ______ bought a house with what would barely be
enough to buy a used car today? Yes, the prices for things are constantly going up, and the
main reason is 2) ______. Here's a fun fact for you. If you had bought a pint of milk in the
UK, in 1960, it would have cost you three pence. Today that will cost you 50 pence. Can we
even buy anything with three pence today? Probably not. So why does this 3) ______
______ happen? And is it a good or a bad thing? Inflation is the rate of increase in the price
of 4) ______ and services over a period of time.
- Hello Joumanna.
- Hey Timo.
- This is Joumanna Bercetche, a CNBC anchor, and our resident monetary policy and
economics whiz. Let's talk about inflation. Why don't we go back to the basics.
- Let's do it.
5) ______ ______ would dictate that there are two main causes for inflation. There is
demand-pull inflation and cost-push inflation. Cost-push inflation happens when business 6)
______ increase, and these extra costs are passed on to their customers. So with cost push
inflation, what happens is that the price of your inputs or your 7) ______ ______ goes up
over time, and that could be because of anticipated events or unanticipated events, like say a
natural disaster. A good example of that would be say what has happened to many of the
world's economies coming out of 8) ______. On the back of that, we've seen a lot of 9)
______ ______ bottlenecks, we've seen a rise in shipping costs, we've seen in certain areas a
labor shortage, and because of those, the most of those inputs will go into the price of 10)
______, inevitably that has led to higher costs.
Then there is demand-pull inflation, which is when the 11) ______ for goods and
services outpaces supply. This tends to happen when the economy is 12) ______. Demand-
pull is probably a better reflection of what happens when the economy is very close to full
capacity. In the case of a very 13) ______ ______, people may feel that they have more
disposable income to spend, and therefore demand for 14) ______ ______ ______ may go
up. And if companies are operating at full capacity, they won't be able to 15) ______ their
production to keep up with that demand. So that could also be inflationary. Some economists
also see increasing money supply as another major cause of inflation. Around the 70s, a new
type of view came to the forefront. And that was posited by famous 16) ______ Milton
Friedman, and his view, and he actually said this, is that inflation, primarily, and everywhere
is a 17) ______ ______.

IV Comprehension check. Mark the sentences as True (T) or False (F). Correct the
false statements.

1. Inflation is the rate of decrease in the price of goods and services over a period of time.
2. Traditional economics would dictate that there are two main causes for inflation.
3. There is demand-push inflation and cost-pull inflation.
4. Cost-push inflation happens when business expenses fall, and these extra costs are
passed on to their customers.
5. With cost push inflation the price of inputs or raw materials goes up over time.
6. Price of inputs or raw materials could go up because of anticipated events or
unanticipated events, like a natural disaster.
7. Demand-pull inflation happened when many of the world's economies were coming
out of lockdown.
8. Lockdown resulted in a lot of supply chain bottlenecks, a rise in shipping costs, a labor
shortage in certain areas.
9. Due to the negative effects of lockdown most of the inputs went go into the price of
manufacturing, inevitably leading to higher costs.
10. Demand-pull inflation is when the demand for goods and services outpaces supply.
11. Demand-pull inflation tends to happen when the economy is weak.
12. Demand-pull happens when the economy is very close to full capacity.
13. In a very weak economy, people have more disposable income to spend, and therefore
demand for goods and services may go up.
14. When companies are operating at full capacity and are not able to increase their
production to keep up with that demand, it could be inflationary.
15. Some economists see increasing money supply as another major cause of inflation.
16. Economist Milton Friedman believed that inflation was a monetary phenomenon.

V Vocabulary focus. Match the words to their definitions. Use three words in your
sentences.

1. apparel A. likely to change suddenly and unexpectedly

2. recreational B. the change in the cost of goods and services but not
including food and energy sectors
3. caveat C. total
4. policymaker D. coming from outside
5. core inflation E. done for enjoyment when people are not working
6. volatile F. to develop in particular way
7. exogenous G. a warning
8. aggregate H. a member of government who is responsible for making
new rules, laws
9. to pan out I. clothes

VI Watch the video and choose the correct option to complete the sentences.

The most widely used measure of inflation is an economic

indicated/indicator/dictator called the Consumer Price Index. It's calculated by measuring
the century/outage/percentage change in the price of a basket of selected goods and
services a typical household/housework/smallholder uses over a period of time. This so-
called basket can include the price of goods such as food, cars, furniture, and apparel, as well
as the price of services such as rent, medical costs and recreational spending.
So let's talk about CPI, the costumed/consumer/accustomed price index. During my
research, I found that this is the way inflation is measured across many countries. Let me just
caveat that by saying each country constructs their own CPI basket, so what is in it is a
function of that country's policemen/policymakers/politician. Essentially, what you want to
have is a basket that just reflects people's spending habits, monthly spending/spent/lending
habits. And so what you put in it is supposed to be a reflection of what a consumer would
typically spend on a month-to-month basis.
Economy/Economics/Economists then take the cost of this basket, divide it by the
cost of basket from the year or quarter they're comparing it to, then multiply it by 100. This
formula calculates the inflation rate/trade/rating we see in headlines. This is known as
headline inflation, but many argue that something called core inflation is the more valuable
metric to follow. What economists try to do is try to smooth out and remove any of the
subcomponents that would be extremely volatile on a month-to-month basis or have no
ultimate reflection on the strength of the economically/economical/economy. Oil, for
example, on any given month, you can have oil moving up and down because of
factual/fractions/factors that are exogenous to how an economy is operating.
So what economists will do is say, "Well, we'll look at the headline number to get a
feel for how at an aggregate level price/pricey/pricing levels are doing." But then if we
want to get an idea for the overall trend of prices, then we're gonna strip out some of those
volatile components and that will give us a better measure of how these inflation numbers
are panning out. Now that we understand what deflation/inflammation/inflation is and why
it happens, let’s explore whether it’s something we should worry about. Ultimately, is it a
good thing or a bad thing? Well, economists have come around to the view that a little bit of
inflation is good.

VII Watch the video from the previous task and answer the questions.

1. What is the most widely used measure of inflation?

2. How is the most widely used measure of inflation calculated?
3. What does a basket of goods and services include?
4. What does CPI mean?
5. How similar is CPI basket for different countries?
6. What do countries include in CPI?
 7. How do economists calculate inflation? What formula do they use?
8. What is core inflation? How do economists calculate it?
9. Is inflation a good thing or a bad thing? How do economists answer that question?

VIII Vocabulary focus. Match the words to their definitions. Use three words in your
sentences.

1. to trigger A. to influence a larger area

2. excessive B. to be one of the reasons why something happens
3. to witness C. a number that is 10 or greater
4. stockpile D. system of monetary management established the rules for
commercial and financial relations among the United
States, Canada, Western European countries, Australia,
and Japan after the 1944 Bretton Woods
5. to spill over E. more than normal
6. double digit F. to see something happen
7. chair G. amount of money paid every week to an employee usually
in unskilled jobs
8. Bretton Woods H. to cause something to start
Agreement
9. to contribute I. a person in charge of an organization
10. wage J. a large amount of something

IX Watch the video and choose the correct words or phrases to complete the
sentences.

1. Usually ____ is a sign of a well-functioning, productive and growing economy.

A. hyperinflation
B. recession
C. inflation
2. Hyperinflation is when prices spiral out of control, with an inflation rate typically
increasing by more than ______.
A. 80% per month
B. 50% per month
C. 15% per month
3. Many things can trigger hyperinflation, but it’s most commonly caused by ___ money
supply and a _____ of confidence in the economy or monetary system.
A. shortage, absence
B. surplus, growth
C. excessive, loss
4. For example, the Weimar Republic, in Germany, after World War I, had average
inflation of about _____.
A. 300 % per month
B. 300 % per year
C. 30 % per month
 5. Inflation ______ spill over into hyperinflation territory to cause trouble.
A. needs to
B. must never
C. doesn’t need to

6. In the 1970s, many of the world’s developed economies witnessed _____.

A. double digit inflation
B. triple digit inflation
C. digital inflation
7. In the 1970s the U.S. had a couple of supply shocks that led to _____ inflation.
A. cost pull
B. cost push
C. costly
8. The energy supply shock that happened around 1973 1974 with the oil embargo, and
then the Iranian Revolution in 1979 led to ______.
A. sky-high rocket prices
B. sky-high house prices
C. skyrocketing oil prices
9. At the same time, the U.S. President Nixon had pulled the US out of Bretton Woods,
_______ on certain goods and in the food space.
A. removed some price controls
B. imposed severe price controls
C. removed government control in some states
10. All of these things contributed to ________ in inflation.
A. a slow and steady fall
B. a slow and steady rise
C. a sharp and sudden rise
11. Inflation led to a ____, so workers started demanding an increase in pay.
A. wage shortages
B. supply spiral
C. wage spiral

12. At one point around 1980, the USA had inflation reach about ____, and the then ___
Paul Volcker said, "Okay, well, inflation is the _____; we've got to cure this."
A. 14%; Fed chair; enemy
B. 40%; head chairperson; sickness
C. 14%; president; worst problem

X Watch the video and put the sentences from the talk in order (for example 1-f).

a) And that is why, in this day and age, nobody wants to go back to what happened in
the 70s and then the painful trade-offs that ensued afterwards.
b) That was the trade-off that the country had to make in order to keep inflation tame.
c) The Fed started this interest rate hiking cycle, at which interest rates in the US
reached 20 %.
d) Eventually, they managed to start taming inflation, and inflation went down to
three percentage points by the mid-80s.
 e) The economy had to go through a very painful adjustment period.
f) And the only way you can cure inflation is by hiking interest rates, so he kept
hiking and hiking, hiking.
g) It came in a very heavy cost, because there were more than 4 million Americans
unemployed at the time.
h) Attempts to bring inflation back to tame levels led to an economic recession in the
U.S.

XI Vocabulary focus. Match the words to their definitions. Use three words in your
sentences.
1. to hike A. a situation in which you accept something bad in order to
get something good
2. to tame B. the process of adapting to a new situation
3. recession C. to increase the cost of something
4. trade-off D. to happen as a result of something else
5. adjustment E. a period when the economy of a country is not successful
6. to ensue F. to control something powerful

XII Watch the video. Complete the sentences with the words you hear.

What are the 1) _____ we've seen countries make to ensure we don't see a repeat of
what we saw in the 70s? Well, I think one of the most important developments is that you
have institutions now, you have 2) _____ _____ whose primary, or one of the main
mandates, is to keep an eye on overall price levels in the system. So many developed
markets, or many central banks out there, their number one goal is to ensure that inflation
doesn't get above a certain 3) _____. The magic number is around 2% for 4) _____
economies’ central banks. They'll say somewhere around there because it's not too high so
that it will start causing secondary 5) _____, but not too low or close to 6) _____ or even
negative, that we may be dangerously close to that deflation or disinflationary dynamics also,
which central banks want to 7) _____.

XIII OVER TO YOU. Conduct a short online research to find official data on inflation
in your country. Discuss the questions with other students.

A) What is the current CPI in your country?

B) What are the causes of inflation in your country? Is it demand-pull inflation and cost-push
type of inflation?
C) What steps are policymakers taking to tackle inflation and avoid its negative impact?
What else could be dome to avoid hyperinflation in future?