What is inflation?
Inflation refers to the rate at which the general level of prices for goods and services rises over time. As inflation increases, purchasing power falls, meaning money buys fewer goods and services.
How is inflation measured?
Inflation is measured using price indices such as the Consumer Price Index. These track the average price changes of a basket of goods and services over time.
Why is inflation important?
Inflation affects wages, savings, interest rates, and business costs. Moderate inflation supports economic growth, while high inflation reduces purchasing power and creates uncertainty.
What causes inflation?
Inflation arises from increased demand, rising production costs, or expansion of money supply. External factors such as supply chain disruptions also influence inflation.
How does inflation affect businesses?
Inflation increases input costs, which affects pricing and profit margins. Businesses often adjust pricing strategies to maintain profitability.