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Economics Grade 12 Notes for 2021 on pdf

·Updated 14 Sep 2026

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Economics Grade 12

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CONTEMPORARY ECONOMIC ISSUES

INFLATION

  • Inflation
  • Description: A sustained and significant increase in the general price level over a period of time; and a simultaneous decline in the buying power of money.
  • Ways to measure inflation
    • Indexes -  two indexes are used Consumer Price Index (CPI) and Producer Price Index (PPI).A price index is compiled by using the prices of a representative range of goods and services which are recorded on a regular basis.
    • Weighting – Each item in the basket of goods and services is given a weight. This weighted index reflects the importance of an item in the basket. The higher the weight the more important is the item.
    • Inflation rate: The inflation rate is determined by using changes in the CPI and/or PPI index. The figures for each month are compared to the corresponding month in the previous year
  • Types of inflation
  • Consumer inflation:

-           Headline inflation- unadjusted CPI rate; (is measured by CPI); consists of a shopping basket of goods and services of an ordinary South African household in urban areas.

It is used for inflation targeting, meaning when it is above 6% SARB may increase interest rates.

-           Core inflation- excludes item in the CPI basket that have volatile prices (continually changing) and those affected by government intervention. Examples vegetables; fresh and frozen meat and fish; interest rate on mortgage bonds; VAT and assessment rates.

            Core inflation is lower than headline inflation and is often stable.

-           Administered prices- prices that are controlled by the government through authorities. e.g. electricity (NERSA),

  • Producer inflation: Producer price index (PPI) measures prices of domestically produced goods.

                     Difference between Consumer Price Index and Producer Price Index

Consumer Price IndexProducer Price Index
Pertains to cost of livingPertains to cost of production
Basket consists of consumer goods and servicesBasket consists of goods only
Capital and intermediate goods are excludedCapital and intermediate goods are included
Prices include VATPrices exclude VAT.
Interest rates are taken into accountInterest rates are excluded.
Prices of imported goods are not shownPrices of imported goods are shown explicitly

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