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Macroeconomics also referred to as Keynesianism, is a branch in economics that deals with the structure, behaviour .performance and decision making of an economy as a whole microeconomics. Economists study the aggregate indicators in the economy such as the Gross Domestic Product (GDP), the price index, unemployment rates, inflation and other interrelations that exist among the different sectors of the economy (Dwivedi, 2010). In our discussion we are going to consider the historical sources of inflation rate in the study of macroeconomics.
In economics, inflation as defined as the sustained increment in the general price level of the services and goods produce in an economy over a particular period of time. This means that the value of money will decline i.e. the loss of purchasing power per unit of money. Inflation rate is used as the chief measure of inflation where the percentage change in the price index over a period time is calculated on yearly basis. Historical inflation rate records and Consumer price index has been used by different economies to represent inflation data. Economies are able to compare the growth rate of one period to another. In consumer price index, some of the factors used in the determination of inflation are:
Historical inflation rate majorly keeps records of the information obtained from the CPI to help in decision in future. Lastly, inflation forecast has been of importance in the economies where it has been applied in the following ways: Through inflation forecasting the government may know the appropriate time to offer inflation indexed bonds to its investors.
By analysing of market variables such as price, Inflation forecasting will help in improving of the quality of surveys and also enhance the understanding of the process of forecast formulation in an economy. Lastly, Reserve Banks monetary forecasting on households gives a measure of sentiment of inflation expectations in order to feed into the monetary policy process.
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