Inflation is a measure of price increases over time, typically expressed as a percentage. The most common indicator is the Consumer Price Index (CPI), which combines prices for a fixed basket of goods and services consumed by households. It includes things like food, housing, and transportation. It also measures the percentage increase in these prices compared to a base year.
Unlike the euphoria that often accompanies the end of wartime or recession, inflation is not usually a good thing. It can decrease the value of savings, deter investment and spending, and lead to shortages if it is too fast. However, moderate inflation can boost economies by increasing the opportunity cost of holding money and encouraging consumers to buy sooner rather than later. It can also erode debt and mortgage payments, freeing up money to spend, and increase the market value of assets such as commodities or property.
There are two main causes of inflation: “demand-pull” and cost-push. Demand-pull inflation occurs when the economy is growing strongly, and demand for products outstrips supply. This may be caused by central bank policy that expands the money supply, or by lower interest rates that encourage borrowing.
Cost-push inflation, on the other hand, occurs when prices of raw materials and labor rise before the deposit pulsa finished product does. This can be due to a negative economic shock such as an oil crisis, or to higher costs of production resulting from higher wages or rising energy costs.