Inflation Rate Based On CPI

A consumer price index (CPI) represents prices that are paid by consumers or households. The price data for the same basket of goods is collected on a monthly basis. This data is then used to compare the prices for a particular month with the prices from a different period of time. We want to know the percentage change in the consumer price index, or the growth rate. From this, we can figure out the rate of inflation in the country. The gray sections are the periods of recession. From this graph, you can see when the rates of inflation are at their highest and lowest.

During the recession of the 1980, the inflation rate was at its peak because of the oil crisis, the energy crisis, and the savings and loan crisis. Oil prices tripled in late 1970's. This caused inflation to soar, and also caused an economic downturn. Firms and consumers couldn’t afford the higher oil prices. Another reason for the high levels of inflation was government overspending, and firms believing that they could raise prices and subsequently, increase wages. This did not pan out the way they expected it to and inflation rates were soaring. The lowest point can be seen during the Great Recession during 2008 until 2009. Inflation was at its lowest because unemployment was high and there was a decrease in prices at this time as well. Whenever the line is above the 0 prices are going up, whenever the line goes below the 0 prices are usually going down, causing deflation.