Inflation refers to the sustained increase in the general price level of goods and services over a period of time. It is often measured by the inflation rate, which is the percentage increase in prices over a specific period. Inflationary pressures can be caused by a variety of factors such as increased demand, rising input costs, or supply shortages.
There are many reasons why inflation occurs but the most common one is due to the increased demand for goods and services that aren't met with enough supply. This leads to higher prices due to competition among consumers. Additionally, rising input costs like wages or raw materials can lead to an increase in prices which contribute to inflation.
There are several types of inflation, including:
Inflation is typically measured by calculating the percentage change in a price index over time. The most commonly used measure of inflation in the United States is the Consumer Price Index (CPI).
Inflation can have both positive and negative effects on an economy. Some benefits include increasing revenues for businesses and reducing debt for borrowers. However, it can also lead to decreased purchasing power for consumers, reduced investment, and decreased economic growth.
Central banks use monetary policy to control inflation by increasing or decreasing interest rates. Governments may also use fiscal policy by increasing taxes or decreasing spending to control inflation.
Hyperinflation is caused by a rapid increase in the money supply, often due to excessive government spending. This leads to a decrease in the purchasing power of the currency and a rapid increase in prices.
