Inflation Definition: Inflation is a continuous rise in the price level of goods and services. It occurs when there is too much money in circulation chasing too few goods. The volume of money in circulation is greater than the quantity of goods and services available.
Types of Inflation
- Demand-pull inflation: Caused by too much money chasing few goods
- Cost-push inflation: Caused by increase in production costs
- Imported inflation: Caused by increase in prices of imported goods
Causes of Inflation
- Too much money in circulation
- Increase in wages without increase in productivity
- Increase in cost of raw materials
- Excessive government spending
- Hoarding and speculation
Effects of Inflation
- Reduces purchasing power of money
- Fixed income earners suffer
- Debtors gain, creditors lose
- Creates uncertainty in the economy