A coffee cost £3 last year. Today the same coffee costs £3.30. The price went up by 30p. That is all we know so far.
What you hand over£3.30
↓→
What you getOne coffee
A price is this swap. Two sides, and either can change.
A price is a swap. You hand over pounds and you get a coffee. So every price has two sides: the coffee, and the pounds. When a price moves, one of the two sides changed. Either coffee got harder to make, or pounds got weaker. A weaker pound is one that buys less.
The coffeeHarder to make?
vsvs
The poundsWeaker?
The coffee price went up. Which two things could have changed?
The coffee, or the pounds.
Right. Those are the two sides of the swap. The rest of this lesson is about telling which one moved.
Only the coffee. A pound is always worth a pound.
Not yet. A pound is always called a pound. But what a pound can buy changes, and that is the side people forget.
Only the shop. A price is whatever the shop says.
Not yet. The shop picks the number, but it picks it against what coffee costs to buy and what other shops charge. The number still tells you about coffee or about pounds.
Olive oil48%
Rent6%
Bus fares6%
Haircuts7%
Bread6%
How much each price rose in one made-up year.
To tell which side moved, look at other prices. If only coffee went up, something happened to coffee. If rent, bread, haircuts and bus fares all went up too, they share one thing: the pounds. Then it is the pounds that got weaker.
Same five prices. Tap the one that is telling you about the thing, not about the money.
Tap the part of the picture that answers it.
Four of them moved together. One moved on its own.
Olive oil48%
Rent6%
Bus fares6%
Haircuts7%
Bread6%
How much each price rose in one made-up year.
Olive oil
Right. Four prices moved together and one moved on its own. The one on its own is news about olives. The four together are news about the pound.
Rent
Not yet. Rent rose by about the same as bus fares, haircuts and bread. A rise that everything shares is not about rent.
Bus fares
Not yet. Bus fares moved in step with three unrelated things. A shared rise has a shared cause, and the only thing they share is the money.
Haircuts
Not yet. Haircuts rose a touch more than the others, but they are still close to them. Look for the price that is far from all the others.
Bread
Not yet. Bread rose with rent, buses and haircuts. Nothing happened to wheat here. Something happened to pounds.
Loaves £10 bought last year10 loaves
Loaves £10 buys this year9.4 loaves
Made up: if every price rose 6%.
When most prices rise together, people say the money lost value. The word for it is inflation. It does not mean things got better or rarer. It just means each pound buys a bit less than it did.
Ten shops on one street. Move the control to change how many of them raised their prices this year.
1 of 10
shops that raised prices
Shops that raised prices: 1 of 10
One shop is dearer: its prices went up. Walk fifty metres and your pound buys what it always did.
3 of 10
shops that raised prices
Shops that raised prices: 3 of 10
Three are dearer. Still a choice, and still a story about those three shops.
7 of 10
shops that raised prices
Shops that raised prices: 7 of 10
Now the cheap shops are the odd ones out, and people ask them why.
10 of 10
shops that raised prices
Shops that raised prices: 10 of 10
Nowhere left to walk. Your pound buys less on the whole street.
Which of these is the first sign that the pounds changed, not the goods?
The rises come fast.
Not yet. Fast is not a cause either. A sea route closed to ships moves fuel prices within days and moves nothing else.
The rises are big.
Not yet. Big says how hard something was hit, not what was hit. One bad harvest can double one price on its own.
Prices go up in shops that have nothing to do with each other.
Right. A bakery and a barber buy nothing from the same place. The only thing they share is the pounds on the other side of the swap.
Move the control.
Which side moved?
One card at a time. Tap the pile it belongs to.
Card 1 of 5
A drought halves the olive crop. Olive oil doubles.
Bread, rent, bus fares and haircuts all rise about 6% in a year.
A new factory makes screens cheaper to build. Televisions get cheaper.
Every price on the menu rises 5%, and so does the pay of everyone reading it.
A war closes a sea route. Shipping costs and fuel jump.
A drought halves the olive crop. Olive oil doubles. → The thing changed
Not yet. The thing changed. Only olive oil moved, and it moved because there are fewer olives.
Bread, rent, bus fares and haircuts all rise about 6% in a year. → The money changed
Not yet. The money changed. Four things with nothing in common rose together, and the only thing they share is the pound.
A new factory makes screens cheaper to build. Televisions get cheaper. → The thing changed
Not yet. The thing changed. Only televisions moved, and they moved because screens got cheaper to make.
Every price on the menu rises 5%, and so does the pay of everyone reading it. → The money changed
Not yet. The money changed. Every price and every wage moved by the same amount, so each pound buys less.
A war closes a sea route. Shipping costs and fuel jump. → The thing changed
Not yet. The thing changed. Shipping costs and fuel moved because ships had to go the long way round, not because pounds got weaker.
One price movesnews about the thing
vsvs
All prices movenews about the money
Right. One thing moving is news about that thing. Everything moving together is news about the money.
Your pay this year£106
Cost of 100 baskets this year£106
Last year £100 of pay bought 100 baskets of shopping. This year your pay is £106 and every price is 6% higher. How many baskets does your pay buy now?
baskets
Divide what you have by what one basket now costs.
Right. Both sides of the swap moved by the same amount, so nothing really changed. The numbers grew. The buying did not.
Petrol30%
Bread1%
Rent2%
Haircuts0%
Price rises this month.
Petrol rises 30% in a month. Nothing else does. A friend says inflation is out of control. What has really happened?
One price moved. That is news about oil, not about the money.
Right. Your pound buys exactly what it did in every shop but the petrol station. Until the other prices follow, the money has not changed.
Money got weaker, because petrol goes into everything.
Not yet. Petrol is part of the cost of many other things. If bread and deliveries follow next year, then the money will have changed. Today it has not. Today it is one price.
Inflation is out of control. Thirty per cent is huge.
Not yet. Thirty per cent is the size of the shock, and size says nothing about what it hit. A single price can jump without the pound moving at all.
Lesson complete
A price has two sides. When it moves, ask which side moved.