Syllabus: Pearson - AS Level Economics
Module: 2.1 Measures of Economic Performance
Lesson: 2.1.2 Inflation

Introduction

Inflation sits at the heart of economic performance, influencing everything from household budgets to government decisions. As part of Pearson Edexcel’s AS Level Economics (specification code 8EC0), topic 2.1.2 builds on foundational macroeconomic knowledge to help students understand inflation as a measurable and meaningful economic indicator. The syllabus frames this through a practical lens—looking at how inflation is measured, the causes behind it, and its wide-reaching consequences.

This topic prepares students to engage with real-world issues, analyse policy decisions, and apply economic thinking to current events. Whether your focus is on classroom delivery or strategic curriculum planning, this topic offers rich opportunities to support attainment and build real economic fluency.

Key Concepts

The Pearson Edexcel AS Level Economics A Specification outlines the following for 2.1.2 Inflation:

• Measurement of inflation:
  Students should understand how inflation is measured using indices such as the Consumer Prices Index (CPI), including how the basket of goods is constructed and weighted.

• Limitations of CPI as a measure:
  Exploration of how CPI may not reflect the experience of all consumers, and how changes in spending habits or regional differences affect accuracy.

• Causes of inflation:
  Students learn to distinguish between demand-pull and cost-push inflation, supported by relevant diagrams and examples.

• Consequences of inflation:
  This includes the effects on consumers, savers, firms, and the wider economy—such as uncertainty, reduced competitiveness, or income redistribution.

• Government targets and policy:
  An overview of how governments and central banks, particularly the Bank of England, respond to inflation through monetary policy.

These components build students’ ability to explain, analyse, and evaluate inflation in both theoretical and applied contexts.

Real-World Relevance

Inflation is never far from the headlines. In recent years, UK inflation surged well beyond the Bank of England’s 2% target, reaching over 10% in 2022 due to global supply chain issues, the energy crisis, and post-pandemic demand shocks.

Take, for example, the 2022 cost-of-living crisis. Students can explore how rising energy and food prices disproportionately impacted lower-income households, and why policy responses—such as interest rate hikes—have trade-offs.

Use case studies like the Bank of England’s monetary tightening or fuel price changes to bring lessons to life. Even asking students to analyse how a £1 basket of goods changed over a year helps ground the theory.

How It’s Assessed

Assessment for this unit is through Paper 2: The UK Economy – performance and policies.

Students may encounter:

• Data response questions featuring CPI graphs or inflation trend tables.

• Short and extended writing tasks, asking them to explain causes or consequences.

• Application-focused questions, such as evaluating a government policy response to inflation.

Key command words include:

• Explain (e.g. “Explain two causes of inflation”)

• Analyse (e.g. “Analyse how inflation can affect households differently”)

• Evaluate (e.g. “Evaluate whether increasing interest rates is an effective tool for managing inflation”).

Students are expected to apply theory to data, draw clear diagrams, and develop balanced arguments with contextual evidence.

Enterprise Skills Integration

Inflation lends itself well to developing enterprise competencies:

• Problem-solving: Analysing how inflation impacts pricing, wages, or investment decisions.

• Decision-making: Debating policy responses like interest rate changes or wage freezes.

• Numeracy and data analysis: Interpreting CPI data and calculating real versus nominal values.

Consider using simulations where students take on roles (e.g. Bank of England, households, firms) to understand competing interests and trade-offs.

Careers Links

This topic naturally links to Gatsby Benchmarks 4, 5 and 6—connecting curriculum learning to careers and encounters with employers:

• Economist or financial analyst: Understanding inflation is core to roles in government, finance, or consultancy.

• Policy advisor or civil servant: Working with departments like the Treasury or Office for Budget Responsibility.

• Retail, logistics, or HR professionals: Inflation influences pricing, wages, and purchasing decisions.

Bring in guest speakers or use mock policy debates to help students see how economic knowledge applies beyond the classroom.

Teaching Notes

• Common misconceptions: Students often confuse cost-push and demand-pull inflation or overlook how inflation affects different economic agents unequally.

• Visual aids help: Diagrams of inflationary and deflationary gaps, CPI calculation stages, or Phillips curves can reinforce understanding.

• Plug-and-play ideas:

  • Start lessons with current CPI figures and headline examples.

  • Use a “basket of goods” challenge where students build and update their own CPI.

  • Set mini-investigations using ONS data.

• Differentiation tips:

  • Scaffold evaluation tasks with sentence starters.

  • For stretch, use Bank of England reports or financial journalism to spark deeper analysis.

• Extension: Ask students to consider how inflation links to unemployment or interest rates, building toward macroeconomic interdependence.