Too high, too low - but not 'just right'

The rate of inflation in the UK is falling, whichever measure you look at. According to the latest CPI (Consumer Price Index) inflation was down to 3% last month. On the RPI (Retail Price Index) measure it was close to zero.

In the current climate monetary policy is being driven by a fear of deflation - falling prices. Listen to Stephanie Flanders report on the Bank of England's fears here.

Yet some believe that the slashing of interest rates is stoking up an inflationary problem for 2011. All of this uncertainty means that the period of price stability ushered in by the granting of operational independence to the Bank of England is over. It is anyone's guess whether prices will actually fall (deflation) or whether prices will rise (inflation) dramatically in 18 - 24 months time. According to Stephanie Flanders, the Goldilocks economy (where prices are 'just right') is a thing of the past. This makes things very tricky for the Bank of England ...

My challenge to Yr 12 economics students

Why are there different measures of inflation and does it matter?