Economic indicators are statistical data that reflect the past, present or future state of the economy. Economic indicators help to measure the level of economic activity, growth rate, inflation, unemployment, consumer confidence and many more factors. Economic indicators are also used to track economic fluctuations, called the business cycle.
The business cycle refers to the rise and fall in aggregate output and income in the economy. The business cycle consists of four phases: expansion, peak, contraction and trough. During the expansion period, the economy grows, employment increases and incomes rise. During the peak period, the economy reaches its maximum capacity and inflation pressure increases. In a recession, the economy shrinks, employment declines and incomes fall. In the bottom period, the economy goes down to its minimum level and deflation pressure increases.
Inflation is the continuous increase in the general price level. Inflation reduces the purchasing power of money and lowers real income. Causes of inflation include excess money supply, excess demand, cost increases and expectations. The inflation rate is measured using price indices. High or low inflation rate affects economic performance. High inflation rate can lead to economic instability and uncertainty. A low inflation rate can stimulate economic growth.
Economic indicators and business cycle; are important tools for understanding and managing inflation. Economic indicators are used to assess the state of the economy and determine what stage of the business cycle it is in. The business cycle is used to explain the causes and consequences of inflation. By monitoring economic indicators and the business cycle, economic policy makers can take appropriate measures to keep inflation under control.