Inflation
| Inflation is a general increase in prices and fall in the purchasing value of money. Inflation happens when the demand for goods and services rise faster than the production. This puts pressure on prices and they start to rise. The main cause of inflation is too much money chasing too few goods. Inflation can have different effects on different people and businesses. For example, people on low incomes may find it hard to keep up with rising prices and may have to cut back on spending. On the other hand, people with savings may see the value of their money decrease as inflation eats into the purchasing power of their savings. Businesses may also be affected by inflation. For example, if the cost of raw materials goes up, this may be passed on to customers in the form of higher prices. Inflation can also make it difficult for businesses to plan ahead as they may not be sure how much their costs will increase by. There are a number of ways to measure inflation. The most common measure is the Consumer Prices Index (CPI), which measures the change in prices of a basket of goods and services. The CPI is used by the Bank of England to set interest rates. Inflation can have both positive and negative effects. For example, it can encourage people to spend rather than save, which can boost economic growth. However, high inflation can also be damaging to economies as it can lead to higher interest rates and uncertainty. |
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