In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, annual inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.
Inflation's effects on an economy are manifold and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, or may lead to reductions in investment of productive capital and increase savings in non-producing assets. e.g. selling stocks and buying gold. This can reduce overall economic productivity rates, as the capital required to retool companies becomes more elusive or expensive. High inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include a mitigation of economic recessions, and debt relief by reducing the real level of debt.
High rates of inflation and hyperinflation can be caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.
Today, most mainstream economists favor a low steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
Inflation, a dirty word for politicians and economists. Yet, it's on almost everyone's mind these days, including some distant villagers in China. There have been many talks about this topic in the business world, be it from the academics, business leaders, employers, employees, real estate agents, or even children. Everyone knows inflation is an evil in one's life. It exists whether you like it or not. The point is you can't eradicate it, you can only … more
"Inflation is going to be serious". That is the sobering assessment offered by Wal-Mart US CEO Bill Simon during a recent meeting with the editorial board of USA Today. We have already started to see the evidence. Led by the biggest jump in food prices since 1974, inflation at the wholesale level soared 1.6% in February. And the likelihood is that it is going to get worse…..a lot worse! Many analysts are predicting price increases in the range of 2-3% per … more
Taxation has a lot of names. It can be called a Tariff, Licensing Expense, Fee, Government Surcharge and more. Whether you are buying a fishing license or licensing a business, you are paying taxes for the privilege (things that used to be free). When I discussed the current tax situation, broken tax promises and coming new taxes in my previous reviews (like the Tax Day Examination of Taxation)...I overlooked an important hidden tax that affects rich and poor alike...inflation. … more