Keeping an eye on rising prices
Discover what inflation is and find out what would
happen if all prices went up at the same time.
How could all prices rise at the same time?
Why does inflation need to be controlled?
If all prices go up slowly by small amounts there’s
no problem. This is a low rate of inflation. Inflation is
measured in percentages. If a toy cost £10 now and prices
go up by 1% the following year (the rate of inflation), the
toy would cost £10.10 the next year.
You might remember hearing grandparents grumbling
about how expensive things are. They talk about the ‘good
old days’ when you would get change from a pound after
buying a bottle of pop (cola to you), a bag of chips and a bus
ticket into town. What they forget to tell you is that they
used to earn a lot less money. So although it’s true that
prices were lower, the fact is that they had less money to spend.
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But if all prices went up quickly by large amounts,
there would be problems. High inflation would mean prices
were going up so much that we would need to spend more and
more money just to buy the essentials. We would need to be
paid more just to afford the same things. Higher wages would
increase the cost of the things we buy. There would be a circle
of rising prices and costs.
Inflation needs to be controlled so we have a
good idea that what our money can buy today, it will also
buy next week, next year and the year after.
How can inflation be controlled?
Inflation can be controlled if the amount of money
being spent is controlled. Controlling the amount of money
helps to keep prices stable (about the same). Some prices
will rise and some will fall, but overall – on average
– prices will be pretty steady. The question is how
can this be done? This is where the Bank of England comes
in with a trick up its sleeve.
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