Inflation is a term used in economics to describe a general increase in the prices of goods and services in an economy over time. It is usually measured using the consumer price index, which reflects the average price change of a basket of goods and services consumed by households over a certain period of time. Inflation is not related to changes in any specific price, but rather to the general trend of prices. It is caused by a variety of factors, including an increase in the money supply, a decrease in the supply of goods and services, and an increase in demand for goods and services. Inflation can be classified into different types, such as demand-pull inflation, cost-push inflation, and hyperinflation.
Inflation can have significant impacts on an economy and its people. It can erode the purchasing power of consumers and businesses, reduce the value of savings and investments, and lead to social and political instability. Central banks and governments often aim to control inflation through monetary and fiscal policies, such as adjusting interest rates, managing the money supply, and implementing price controls.
It is important to note that inflation should not be confused with deflation, which refers to a general decline in prices when the inflation rate falls below 0% .
