What is Inflation?
Inflation Meaning – Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It is measured as an annual percentage increase. When the inflation rate is high, each unit of currency buys fewer goods and services. This leads to a decrease in the purchasing power of money.
Inflation is caused by a variety of factors, including increases in the money supply, increases in demand for goods and services, and increases in production costs. When the money supply increases, it can lead to an increase in prices as more money is chasing the same amount of goods and services.
Similarly, when demand for goods and services increases, prices can rise as more people are competing for the same amount of goods and services. Finally, when production costs increase, companies may pass those costs on to consumers, leading to higher prices.
It affects the economy in a variety of ways. It can have both positive and negative effects. On the positive side, inflation can encourage spending and investment. When prices are rising, people are more likely to buy goods and services now, rather than waiting for prices to go up even further. This can lead to an increase in demand for goods and services, which can lead to increased economic activity.