Inflation

Many people think that inflation is a rise in prices of goods and services, but a true definition of inflation is not defined as the increase in prices, but as the increase in the supply money that causes the increase in prices.

In other words, inflation is a cause rather than the effect of a rise in prices, due to an increase in the money supply.

What are the causes of inflation?

Too much demand in the еconomy. This is called demand-pull inflation.

Higher costs forcing firms to incrеase their prices. This is called cost-push inflation.

Excessive growth of the money supply.

Why is inflation considered to be bad?

Inflation tends to redistribute income and wealth from lenders to borrowers. Borrowers gain because it reduces the value of their debt, while lenders lose because it reduces the value of the money they lent.

Inflation reduces the buying power of money, so unless wages keep up with inflation, people become worse off.

People dependent on savings or fixed-rate pensions are severely affected by high inflation that exceeds interest rates, because it makes serious inroads into their capital.

Higher prices trigger all sorts of inflationary behavior, such as workers everywhere demanding higher salaries, which causes producers to raise their prices again, and so on.

High inflation erodes confidence in the country's currency, causing the exchange rate to drop, causing more inflation through import price increases.
Inflation tends to encourage speculative activity, at the expense of productive activity, and tends to discourage saving and investment.