Inflation and deflation is measured by many sources in a variety of ways, depending on how the information is to be used and who by. In Australia, the Australian Bureau of Statistics in the form of the Consumer Price Index (CPI) measures inflation and deflation. The changes in the CPI reflect the levels of inflation or deflation, which in turn encapsulates the real cost of living. The CPI is measured by the use of a "basket of goods and services", all the goods and services are priced in one year and then again the following year, changes in prices can then be used to calculate inflation or deflation. In the "basket of goods and services" there is eight categories...

Economists study patterns and trends within the economy - inflation and deflation is not exempt from such a study. Trends are common within inflation and deflation; the best example of such is the way inflation and deflation is linked with the business cycle. Generally, when the business cycle is in an expansionary phase, this is when inflation occurs and when the business cycle is in a contractionary phase, this is when deflation occurs.

The different categories for inflation and deflation reflect the circumstances that create the inflation or deflation, reflect the characteristics that make that type of inflation or deflation different from another and also reflect the way in which the inflation or deflation needs to be managed and finally the way in which it will be corrected if need be.

If the costs of production fall, this results in an immediate fall in prices of the produced good or service (unless of course the business chooses not to pass on the savings to consumers). Therefore if production costs fall, prices fall which causes deflation.

Individuals are affected directly as a result of inflation and deflation and by the antics of other participants in the economy - business and government. Individuals are affected directly by inflation and deflation pressures such as...

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