Updated: Nov 14
Author: Anežka Hájková
Date of Publication: 29/08/2022
What is inflation?
Inflation means a repeated rise in prices in a given economy. Inflation weakens real value of a given currency in relation to the goods and services that the consumer buys. If consumer price inflation is present in the economy, then the consumer needs more and more units of the country's currency to buy the same goods and services. In practice, inflation in the area of consumer prices is measured as an increase in the so-called consumer price index. A decrease in inflation is referred to as disinflation. If most prices in the economy fall over a long period of time, we speak of deflation.
The prices of consumer goods and services are naturally subject to many different influences. Moreover, many of these influences are completely or largely beyond the reach of central bank monetary policy measures. This is because in some cases these influences can be strong. For example prices are indicated as well for oil and natural gas, for agricultural crops or for goods and services with regulated prices. One of them is adjusted inflation excluding fuel. This means the price index of non-food items of the consumption basket excluding regulated price items, administrative interventions and excluding fuel.
What is causing high inflation?
The rate of inflation exceeded the expectations of experts and is likely to increase further. The economic effects of the current military conflict in Ukraine will also affect it. So, the longer the war lasts, the more pronounced the effects will be.
How to calculate inflation rate?
Calculation for the inflation rate is the ratio of the price index for the selected period, or at its end and beginning. The consumer price index or the GDP deflator (ratio of nominal and real GDP) are most often used as price indices. The formula:
X-Y/Y * 100
What if there is inflation?
In the long run, material protection investments provide the best against inflation. Generally anything tangible that has some real utility value - such assets retain that real value with inflation. They are typical real estate, fields, and forests. Also, they can be actions of companies on and off the stock exchange
Inflation in Europe?
Annual inflation in June was up to 8.6 % in the euro area and up to 9.6 % in the European Union. The lowest annual rates were in Malta (6.1%), France (6.5%) and Finland (8.1%). On the other hand, the highest annual rates were in Baltics states. Estonia (22.0%), Lithuania (20.5%) and Latvia (19.2%).
In June, the highest contribution to the annual euro area inflation rate came from energy (+4.19 percentage points, pp). The other categories were food, alcohol & tobacco (+1.88 pp), services (+1.42 pp) and non-energy industrial goods (+1.15 pp).
The euro area includes 19 countries which uses Euro as a currency - Austria, Cyprus, Portugal, Slovenia, Slovakia, Malta, Finland, Belgium, Germany, Spain, France, Italy, Estonia, Ireland, Greece, Latvia, Lithuania, Luxembourg and the Netherlands.
The European Union includes Denmark, Hungary, Malta, Sweden, Poland, Finland, Portugal, Belgium, Bulgaria, Slovenia, Slovakia, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Czechia, Germany, Luxembourg, the Netherlands, Austria and Romania.