The Inflation Puzzle: Understanding the Factors Driving Prices Up
What is inflation ? Inflation is a general increase in the price level of goods and services in an economy over time. When inflation occurs, each unit of currency buys fewer goods and services than it did before. In other words, inflation erodes the purchasing power of money over time. Inflation is usually measured by tracking the changes in the prices of a basket of goods and services, known as the Consumer Price Index (CPI). Central banks and governments try to manage inflation by controlling the money supply and adjusting interest rates, among other policy tools. Inflation can have both positive and negative effects on an economy. On the one hand, moderate inflation can encourage spending, investment, and economic growth. On the other hand, high or unpredictable inflation can lead to uncertainty and instability, making it difficult for individuals and businesses to plan for the future. why inflation is increasing? 1. increased demand. Increased demand is...