Inflation

Inflation is an economic process in which the general price level of goods and services in a country rises, while the purchasing power of money declines. It can occur for various reasons:

1. Cost Push: Increases in the prices of raw materials and labor costs can force companies to raise the prices of their products.

2. Excess Demand: When demand for goods exceeds supply, prices can rise.

3. Increase in Money Supply: When central banks print more money, it can lead to inflation if it is not accompanied by an increase in production.

Inflation is measured using indexes such as the Consumer Price Index (CPI), which tracks changes in the prices of a fixed basket of goods and services.

Moderate inflation (usually 2-3% per year) can stimulate economic growth, as consumers, expecting higher prices, are more likely to spend money now. However, high inflation can lead to economic instability, lower living standards, and devaluation of savings.

Impact on the economy:

• Savings: With high inflation, the real value of savings decreases.

• Investments: Investors may seek assets that protect against inflation, such as gold or real estate.

• Wages: Workers may demand higher wages to compensate for rising prices.

Inflation is a complex and multifaceted process that impacts all aspects of the economy and people’s lives.