Inflation

What is inflation？
We’ve spoken about inflation a lot in this module, and in case you haven’t got it yet; put simply inflation is ‘Rising prices’.

It can also be described as the sustained increase in the prices of goods and services.

What does inflation do？
Inflation causes what we call an erosion of the purchasing power of your money.

I.e. your money is worth less, you can buy less with your buck [or pound or euro] and its all because of inflation.

What causes inflation？

There are two maincauses of Inflation:
Demand-Pull Inflation; this form of inflation occurs when aggregate demand outweighs aggregate supply. When there is more demand than there is supply, prices increase = inflation.

Cost-Push Inflation; this form of inflation occurs as a result of an increase in say the prices of wages and or of raw materials. These increased costs cause supply to decrease and consequently the amount of demand will outweigh supply. Again, where there is more demand than there is supply, prices increase = inflation.

What are the different types of inflation？

• Hyper-Inflation – Extremely rapid or out of control rising inflation
• Deflation  – Falling prices – The opposite of Inflation
• Stagflation – Sluggish economic growth accompanied with rising inflation
• Disinflation – Slowing of Inflation rate