Inflation Case

Introduction

We have all heard about inflation from different Media sources such as TV, Radio, Newspapers, and economy magazines or even from the people around us but do we know the real meaning of inflation? Do we know what the background of inflation is? How to calculate inflation by using consumer price index CPI? Does it affect our economy? Is it affecting the people, government or both? What are the consequences of high inflation?

In this report, the research has answered the some of above questions from different resources. Using both empirical and various theories of inflation we will describe the inflation. Moreover, to find out consumer prices and cost of living changes in Oman for previous years and how the government has dealt to control the inflation rate for consumer goods.

Oman Economy, Inflation and the Empirical Inflation Examination

Inflation is simply defined as an annual increase in the price of goods resulting in a decrease of the purchase power of money for the same goods before inflation.

Inflation is caused generally by two reasons:

A. Increase in Production Costs: When the expenses to produce goods and services rise due to an increase in the prices of raw materials, transportation or technology, the price of the final good manufactured or the services offered increases as well. As a result, the amount of money previously sufficient to purchase these goods will no longer be enough.

B. Increase in the Demand: In the market economy, when the demand for goods is higher than the supply of the goods, this results in an increase in the price of these goods.