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

Introduction

Inflation is one of the core macroeconomic indicators covered in Pearson Edexcel A Level Economics A, under Theme 2: The UK economy – performance and policies. The topic 2.1.2, “Inflation,” asks students to understand not just what inflation is, but why it matters, how it’s measured, and how it affects individuals, firms, and governments.

This lesson supports deeper understanding of economic policy decisions, student awareness of national and global economic challenges, and their ability to interpret key economic data. It connects directly to assessment content in Paper 2 and Paper 3, and plays a key role in linking theory to real-world economics.

Key Concepts

According to the Pearson specification, students are expected to explore the following:

• The definition of inflation: A sustained rise in the general price level, leading to a fall in the purchasing power of money.

• Measurement: Understanding how inflation is measured using the Consumer Prices Index (CPI), including how the ‘basket of goods’ is constructed and updated.

• Limitations of CPI: Changes in quality, variations in spending habits, and regional differences.

• Causes of inflation:

  • Demand-pull: Where aggregate demand exceeds aggregate supply.

  • Cost-push: Where rising costs (e.g. wages, raw materials) push up prices.

• Consequences of inflation:

  • Impacts on real income, savings, exports, and investment confidence.

  • Redistribution effects across income groups.

• Control of inflation: The role of monetary policy, especially interest rates and quantitative easing, as used by the Bank of England.

Real-World Relevance

Inflation has moved from textbook theory to dinner table conversation in recent years. UK inflation peaked at over 11% in 2022 following the global energy crisis and supply chain shocks. Students can explore how rising fuel and food prices affected household budgets and public sector negotiations.

Mini case study:
In 2023, the UK government faced pressure from public sector workers demanding pay rises in line with inflation. This triggered debates on wage-price spirals, public borrowing, and long-term economic stability. A great prompt for class discussion: should public sector pay always track inflation?

Linking back to the syllabus, this offers live context for the impact of cost-push inflation and the policy trade-offs faced by governments.

How It’s Assessed

Students can expect inflation to appear in both structured and extended-response questions. Assessment across Papers 2 and 3 often includes:

• Data response: Interpreting graphs and CPI figures, explaining trends.

• Short answer: Defining terms like CPI, real income, or identifying causes of inflation.

• Extended evaluation: Discussing the consequences of inflation or evaluating policy responses.

Command words to prioritise:

• Explain (e.g. “Explain one limitation of using CPI to measure inflation.”)

• Analyse (e.g. “Analyse the effects of inflation on households and firms.”)

• Evaluate (e.g. “Evaluate the effectiveness of interest rate policy in controlling inflation.”)

Encourage students to structure longer answers using point-explain-link-evidence-evaluate techniques.

Enterprise Skills Integration

Teaching inflation offers fertile ground for developing enterprise skills such as:

• Decision-making: Exploring how inflation affects business pricing strategies or wage negotiations.

• Problem-solving: Analysing policy options for tackling inflation and their trade-offs.

• Data literacy: Reading and interpreting CPI tables, inflation indices, and trend graphs.

• Critical thinking: Debating whether inflation targets should be flexible or fixed.

You could use real business scenarios or simulations (e.g. mock Monetary Policy Committees) to build these skills actively into lessons.

Careers Links

Inflation links naturally to several Gatsby Benchmark 4 and 5 outcomes. Students learn about:

• Roles in economics and policy: Such as economists at the Bank of England, financial analysts, or civil service policy advisors.

• Business and finance careers: Understanding inflation is key for roles in banking, investment, or business management.

• Academic pathways: Economics at university, finance, PPE, or international relations.

Invite a guest speaker (e.g. a local financial adviser or economics graduate) to talk about how understanding inflation shapes their work. Even better if they can share real inflation-related decisions.

Teaching Notes

Tips:

• Anchor abstract ideas with personal impact. How far does a £10 note go today vs. 5 years ago?

• Use contemporary CPI data from the ONS to build numeracy and interpretation skills.

• Reinforce the link between macro policy and personal experience to boost engagement.

Common pitfalls:

• Students often confuse CPI with RPI or think inflation means all prices rise equally.

• Many struggle to distinguish between cost-push and demand-pull inflation clearly in application.

Extension activities:

• Research inflation in another country (e.g. Argentina or Turkey) and compare with UK policy responses.

• Debate: “Should the Bank of England raise rates even if it causes unemployment?”