INFLATION

Inflation refers to a rise in prices that causes the purchasing power of a nation
to fall. Inflation is a normal economic development as long as the annual
percentage remains low; once the percentage rises over a pre-determined
level, it is considered an inflation crisis. There are many causes for inflation,
depending on a number of factors. For example, inflation can happen when
governments print an excess of money to deal with a crisis. As a result, prices
end up rising at an extremely high speed to keep up with the currency surplus.
This is called the demand-pull, in which prices are forced upwards because of
a high demand What is Inflation?

The measure of price increases within a set of goods and services over a period of time is known
as inflation. The most common gauge of inflation is known as the CPI, or consumer price index,
which measure the price increases (decreases) of basic consumer goods and services. The GDP
deflator is another very important measure of inflation as it measures the price changes in goods
that are produced domestically. In effect, inflation decreases the value of your money and makes
it more expensive to buy goods and services.

Causes OF Inflation

There are a few different reasons that can account for the inflation in our goods and services; let's
review a few of them.

1) Demand-pull inflation refers to the idea that the economy actual demands more goods and
services than available. This shortage of supply enables sellers to raise prices until an equilibrium
is put in place between supply and demand.

What is inflation? In the simplest terms one can say that inflation is an increase in the prices of
goods and services in an economy, which occurs due to reduction of the value of the national
currency. Basically, when there is inflation in an economy, you can purchase fewer goods and
services in one dollar than what you could previously. But inflation is not just a one off increase
in the prices of one particular commodity, but a general and sustained increase in the prices right
from the increase in the cost of production to the cost of living. There are two basic types of
inflation in the economy classified according to what the cause of inflation is - cost push and
demand pull inflation. In this article, I will discuss what is demand pull inflation and what are the
causes of demand pull inflation.