Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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What is *Price Inflation* commonly known as?

A general increase in consumer savings
A sustained decrease in purchasing power
A sustained increase in the general level of prices
An increase in the unemployment rate

The correct answer is: A sustained increase in the general level of prices

Price inflation is commonly known as a sustained increase in the general level of prices. This phenomenon occurs when the overall prices of goods and services in an economy rise over a period, leading to a decrease in the purchasing power of currency. When price inflation occurs, each unit of currency buys fewer goods and services, which can impact consumers' ability to afford various products and may necessitate wage increases to keep up with rising costs. Understanding that price inflation reflects a broader economic condition is crucial, as it affects both individuals and businesses. It highlights how inflation can be assessed through various economic indicators, such as the Consumer Price Index (CPI), which measures changes in the price level of a market basket of consumer goods and services over time.