The Basket of Inflation — Money Square · Investopia
Inflation is when prices go up over time and your money buys less. If bread cost 20 cents and now costs 25, your money buys less bread.
Inflation is when prices go up over time and your money buys less.
The Story
If bread cost 20 cents and now costs 25, your money buys less bread. In Portugal, INE measures inflation by tracking the prices of a basket of goods and services.
Very high inflation is dangerous. In Germany, in 1923, prices went up so much that people carried notes around in wheelbarrows. In Zimbabwe there was a 100-billion-dollar note. That’s why the ECB tries to keep inflation steady, close to 2%, and uses interest rates to help.
Key Ideas
- Inflation: Rising prices overall over time.
- Basket: A list of things families buy, used to measure prices.
- Purchasing power: What you can actually buy with your money.
- 2% target: The European Central Bank aims to keep inflation close to 2% in the medium term.
Step by Step
- Choose a basket: bread, milk and fruit.
- Add up the price of the basket this year.
- Add up the price of the same basket next year.
- Work out the difference as a percentage.
- That increase is your basket’s inflation.
Your Turn
With an adult, note the price of three things at the supermarket and keep the receipt. In a few months, compare the prices.
Educational simulation with fictional LeoCoins. Not financial advice and no buy or sell recommendations. Companies in the game are invented. Real money decisions are for adults — talk to a trusted adult.
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