Civil Engineering Reference
In-Depth Information
Table 14.1
shows UK annual average inflation rates for the period 1951-2010.
It highlights that the 1950s and 1960s were periods of low inflation, with prices
rising by less than 6 per cent in most years. In the 1970s inflation rates were much
higher and very volatile - in fact, during 1975 alone prices rose by 24 per cent. The
1980s saw the second highest rises in consumer prices in the post-war period, and
much of this reflected the increased costs in mortgage payments and council tax. The
most recent period shown in the table, from 1990 to 2010, could be characterised
relative to the previous two decades as a period of
low inflation
with rates rarely
exceeding 3.5 per cent.
Table 14.1
UK inflation rates
Period
Annual average
change in price
1951 - 1960
1961 - 1970
1971 - 1980
1981 - 1990
4.1%
4.1%
13.8%
6.6%
1991 - 2000
3.1%
2001 - 2010
2.8%
Source:
Office for National Statistics
Deflation
, which is defined as a sustained fall in the general price level, is the
complete reverse of inflation, even to the extent that it typically results from
a fall in aggregate demand, in response to which firms reduce prices in order
to sell their products. Inevitably, as a form of price instability, deflation also has
adverse economic consequences and its poses particular difficulties for economic
management - one being that as interest rates cannot fall below zero, the Bank of
England monetary policy committee would not be able to reduce interest rates to
stimulate demand. The macroeconomic aim, therefore, is to steer a stable course
between inflation and deflation. To achieve price stability, the current target is to
maintain the UK inflation rate around 2 per cent - and it certainly should not be
allowed to go below zero.
Measures of inflation involve representing changes in price over a period of time.
The statistical device best suited for this purpose is index numbers. Index numbers
are a means of expressing data relative to a given
base year
. They enable the cost
of a particular range of products to be expressed as a percentage of the cost of
the same group of products in a given base year. The basic principle is shown in
Figure 14.1
. The same range of goods must be put into the basket for the base
year and comparative year. That is, the system is dependent on like-for-like price
comparisons, or as near as possible, from one time period to the next.
This approach is used to produce construction related indices. For example,
the Investment Property Databank compiles property information by comparing
