Inflation is a general increase in the prices of goods and services in an economy over a period of time. This results in the decrease in the purchasing power of money.
Inflation is measured by using the consumer price index (CPI), which tracks the prices of a fixed basket of goods and services over time. The percentage change in the CPI represents the inflation rate.
Inflation can be caused by various factors, such as an increase in demand for goods and services, a decrease in the supply of goods, or an increase in the cost of production. Government policies and actions can also impact inflation rates.
Inflation can have both positive and negative effects. In the short term, it can stimulate economic growth by encouraging consumer spending. However, high inflation rates can lead to decreased purchasing power, increased borrowing costs, and economic instability.
The most common way to control inflation is through monetary policy, which is managed by central banks. They can raise interest rates to decrease the money supply and control inflation. Governments can also implement fiscal policies, such as increasing taxes or decreasing government spending, to control inflation.