Inflation and Government Economic Policies Essay

Inflation and Government Economic Policies - Essay Example Economists tend to view moderate inflation favorably as it enables an economy to withstand a recession and empowers monetary policies to stabilize the economy. Additionally, inflation serves as a benchmark for a growing economy. Inflation may be regulated through monetary and fiscal policies by the monetary authorities. The Consumer Price Index is a measure of variations in the cost of a basket of commodities bought by households in a given period. Inflation can be quantified as the annual positive change in the Index. As shown in Table 1, since 2000 the C.P.I. has maintained a steady rise, except for 2009 when it fell (U.S. Bureau of Labor Statistics., 2015). Such an increase in the Consumer Price Index has been due to increased buying by the consumer. The desire to have the latest electronic gadget has primarily contributed to the increased purchasing, resulting in a positive change in the C.P.I. Additionally, C.P.I has been affected by the amount of disposable income and the relative prices of competing commodities. On the other hand, Producer Price Index (P.P.I) is an average measure of the change in the retailing prices paid to internal producers for their output. While the P.P.I has always been in constant flux, the change in the prices has always been a positive change. The increases in producer prices are due to the increasing cost of raw materials and sources of energy. Due to the constantly fluctuating prices of oil, which is a major raw material or source of energy, the P.P.I has always reflected the flux experienced in the global oil prices. In 2009, PPI experienced a negative change due to falling prices of raw materials during the financial crisis as shown in Table 2 (U.S Bureau of Labor Statistics., 2015). Consumer Expenditure Survey (C.E) is a federal survey that tracks the purchasing behavior of American consumers through the Quarterly Interview Survey and the Diary Survey. Since