... The goods and services included in the RPI are chosen and weighted on the basis of the spending patterns of UK households - for example, if gas bills account for around 1% of consumers' total spending, then gas prices will account for about 1% of the total RPI. One type of inflation is called monetary inflation. In the economy, MxV=PxT where M is the money supply, V is the velocity, P is the general price level and T is the number of transactions. Monetarists believe that V and T are constants, so they thought that money supply and inflation are directly related. If the demand for money is increasing then the government will need to print more money. This will in-turn lower the real value of the money and lead to higher inflation. This is a vicious cycle and if monetary policy is not implemented correctly it can lead to ...

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