Inflation. Inflation in practice Inflation Inflation rates in selected industrial countries UK.

InflationInflation

Inflation in practiceInflation in practiceInflation in practiceInflation in practice

InflationInflation

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

UK

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Inflation (% increase in retail prices)

UK

EU15

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Inflation (% increase in retail prices)

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

UK

EU15

USA

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Inflation (% increase in retail prices)

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

UK

EU15 Japan

USA

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Inflation (% increase in retail prices)

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

UK

EU15 Japan

USA

OECD

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1965 1970 1975 1980 1985 1990 1995 2000

Inflation (% increase in retail prices)

Inflation rates in selected industrial countriesInflation rates in selected industrial countries

Aggregate demand,Aggregate demand,

aggregate supplyaggregate supply

and the price leveland the price level

Aggregate demand,Aggregate demand,

aggregate supplyaggregate supply

and the price leveland the price level

InflationInflation

O

Pri

ce le

vel

National output

Aggregate demandAggregate demand

O

Pri

ce le

vel

National output

AD

Aggregate demandAggregate demand

O

Pri

ce le

vel

National output

Aggregate demandAggregate demand

O

Pri

ce le

vel

National output

AS

Aggregate supplyAggregate supply

O

Pri

ce le

vel

National output

AS

AD

Aggregate demand and aggregate supplyAggregate demand and aggregate supply

O

Pri

ce le

vel

National output

AS

AD

Pe

Aggregate demand and aggregate supplyAggregate demand and aggregate supply

O

Pri

ce le

vel

National output

AS

AD

Pe

P2

ab

Aggregate demand and aggregate supplyAggregate demand and aggregate supply

Demand-pull andDemand-pull and

cost-push inflationcost-push inflation

Demand-pull andDemand-pull and

cost-push inflationcost-push inflation

InflationInflation

O

Pri

ce le

vel

National output

AS

AD1

P1

Q1

Demand-pull inflationDemand-pull inflation

O

Pri

ce le

vel

National output

AS

AD1

P1

Q1

AD2

Demand-pull inflationDemand-pull inflation

O

Pri

ce le

vel

National output

AS

AD1

P1

Q1

AD2

P2

Q2

Demand-pull inflationDemand-pull inflation

Cost-push inflationCost-push inflation

O

Pri

ce le

vel

National output

AS1

AD

P1

Q1

O

Pri

ce le

vel

National output

AS1

AD

P1

Q1

AS2

Cost-push inflationCost-push inflation

O

Pri

ce le

vel

National output

AS1

AD

P1

Q1

AS2

P2

Q2

Cost-push inflationCost-push inflation

The interaction ofThe interaction of

demand-pull anddemand-pull and

cost-push inflationcost-push inflation

The interaction ofThe interaction of

demand-pull anddemand-pull and

cost-push inflationcost-push inflation

InflationInflation

The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation

O

Pri

ce le

vel

National output

AS1

AD1

P1

O

Pri

ce le

vel

National output

AS1

AD1

P1

AS2

AD2

P2

The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation

O

Pri

ce le

vel

National output

AS1

AD1

P1

AD2

P2

AS3

AD3

P3

AS2

The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation

The interaction of demand-pullThe interaction of demand-pulland cost-push inflation:and cost-push inflation:

(a) an initial increase in(a) an initial increase inaggregate demandaggregate demand

The interaction of demand-pullThe interaction of demand-pulland cost-push inflation:and cost-push inflation:

(a) an initial increase in(a) an initial increase inaggregate demandaggregate demand

InflationInflation

Initial demand-pull inflationInitial demand-pull inflation

O

National output

Pri

ce le

vel

AS short run

AD

P0a

O

National output

Pri

ce le

vel

AS

AD

P0

AD1

P1

a

b

Initial demand-pull inflationInitial demand-pull inflation

O

National output

Pri

ce le

vel

AS

AD

P0

AD1

P1

a

b

AD2

P2 c

Initial demand-pull inflationInitial demand-pull inflation

O

National output

Pri

ce le

vel

AS

AD

P0

AD1

P1

a

b

AD2

c

Subsequentsupply response

AS1

P2

P3d

Initial demand-pull inflationInitial demand-pull inflation

O

National output

Pri

ce le

vel

AS

AD

P0

AD1

P1

a

b

AD2

c

Subsequentdemand response

AS1

d

P2

P3

AD3

P4

e

Initial demand-pull inflationInitial demand-pull inflation

O

National output

Pri

ce le

vel

AS

AD

P0

AD1

P1

a

b

AD2

c

AS1

d

P2

P3

AD3

P4

e

Subsequentsupply response

AS2

fP5

Initial demand-pull inflationInitial demand-pull inflation

O

National output

Pri

ce le

vel

AS

AD

P0

AD1

P1

a

b

AD2

c

AS1

d

P2

P3

AD3

P4

e

AD4

Subsequentdemand response

AS2

fP5

gP6

Initial demand-pull inflationInitial demand-pull inflation

The interaction of demand-pullThe interaction of demand-pulland cost-push inflation:and cost-push inflation:

(b) an initial reduction in(b) an initial reduction inaggregate supply / increaseaggregate supply / increase

in aggregate costsin aggregate costs

The interaction of demand-pullThe interaction of demand-pulland cost-push inflation:and cost-push inflation:

(b) an initial reduction in(b) an initial reduction inaggregate supply / increaseaggregate supply / increase

in aggregate costsin aggregate costs

InflationInflation

Initial cost-push inflationInitial cost-push inflation

O

National output

Pri

ce le

vel

AS

AD

P0

a

O

National output

Pri

ce le

vel

AS

AD

P0

P1 ab

AS1

Initial cost-push inflationInitial cost-push inflation

O

National output

Pri

ce le

vel

AS

AD

P0

P1 ab

c

AS1

P2

AS2

Initial cost-push inflationInitial cost-push inflation

O

National output

Pri

ce le

vel

AS

AD

P0

AD1

P1 ab

c

AS1

d

P2

P3

Subsequentdemand response

AS2

Initial cost-push inflationInitial cost-push inflation

O

National output

Pri

ce le

vel

AS

AD

P0

AD1

P1 ab

c

AS1

d

P2

P3

P4e

Subsequentsupply response

AS2

AS3

Initial cost-push inflationInitial cost-push inflation