Inflation

What is Inflation?

Inflation is a measure of how much prices for goods and services have increased over time. It's often measured as an annual percentage increase in the Consumer Price Index (CPI). The most common cause of inflation is the money supply, which affects the amount of money available to spend by households.

Causes of Inflation

• Buying Power Decrease
• Expectations and Spending
• Natural Disasters
• Monetary Policy Errors

Effects of Inflation

In a time of high inflation, the purchasing power of money decreases. For example, if you have $100 and an 8% annual increase in prices, after one year, you'll only have $88. If that same amount were invested at a fixed rate over a longer period, the value of your investment would be around $400 after two years.

Types of Inflation

• Cross-Price Inflation (e.g., housing market)
• Demand-Pull Inflation (e.g., infrastructure development)
• Purchasing Power Inflation (e.g., currency exchange rates)