| Period | Headline CPI (%) | Trimmed Mean Inflation (%) |
|---|---|---|
| 2022 Q1 | 1.8 | 2.5 |
| 2022 Q2 | 3.2 | 3.1 |
| 2022 Q3 | 4.8 | 3.9 |
| 2022 Q4 | 6.5 | 4.6 |
| 2023 Q1 | 7.4 | 5.2 |
| 2023 Q2 | 8.2 | 5.5 |
| 2023 Q3 | 7.9 | 5.6 |
| 2023 Q4 | 7.1 | 5.4 |
The Central Bank of Aurelia reports that consumer price inflation rose sharply throughout 2022 and into mid-2023, carrying Headline CPI far beyond the official 2.0% medium-term target. This rapid acceleration has been driven primarily by severe international shipping bottlenecks and domestic weather extremes that severely disrupted agricultural yields, sending food and energy costs soaring.
As wholesale energy and raw material prices spiked, local firms faced substantial margin compression. While many initially absorbed these elevated input costs, prolonged supply constraints eventually forced widespread pass-through to consumer prices. Fearing a severe erosion of purchasing power, trade unions have successfully negotiated higher nominal wage agreements. Economists warn that without corresponding improvements in labor productivity, these wage increases risk embedding inflation via a wage-price spiral.
To achieve a durable reduction in inflation without triggering a recession, policymakers in Aurelia are advocating a shift toward structural supply-side initiatives. By expanding Aurelia's productive capacity, long-term supply-side reforms can relieve domestic bottlenecks and structurally anchor price stability.
Key recommendations include public investment in transport infrastructure, deregulation of key services, and tax credits for agricultural technology. Such measures enhance efficiency and lower unit production costs, allowing domestic businesses to absorb global cost shocks more effectively. This supply-side expansion relieves pressure on monetary policy, facilitating a smoother transition of inflation back to target.
Using Extract D, identify two significant points of comparison between the Headline CPI and Trimmed Mean Inflation measures of inflation over the period shown.
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.