Concept of inflation

A transversal classification distiguish inflations, basing on their broadly-defined origins: 1. German consumers exacerbated the cycle by trying to spend their money as fast as possible, expecting that it would be worthless and less the longer they waited.

Nonetheless, significant episodes of hyperinflation are still common and many stagnating economies can't take off both because of inflation and anti-inflationary policies.

Concept of inflation

Investing Against Inflation Stocks are considered to be the best hedge against inflation, as the rise in stock prices are inclusive of the effects of inflation. Moreover, excessive inflation can also wreak havoc on retirement savings as it reduces the purchasing power of the money that savers and investors have squirreled away. Moderate inflation can be differently defined around the world, given the different inflation histories. Or inflation is attributed to budget deficit financing. It has also been theorized that demand-pull can happen as a result of high employment, meaning the people have more disposable income. But, at the same time, firms are to be blamed also for the price rise since they simply raise prices to expand their profit margins. In Fig. Therefore, in a low-interest rate environment, you could save money in a CD but still value because of inflation and taxes -- you are doing what I call "losing money safely. This problem can be overcome by including all available price changes in the calculation, and then choosing the median value. Since any increase in the cost of raw materials, labor, transport and other facets of operation leads to an increase in the price of the finished product a company produces, the inflationary effect gets reflected in stock prices. Inflation hits us from every angle. A generalized cost increase, as with wages , energy prices especially oil prices , devaluation , and certain taxes , is clearly conducive to inflation. As long as things are moving in relative unison, inflation will not be detrimental. Food prices go up, transportation prices increase, gas prices rise , and the cost of various other goods and services skyrocket over time. In other terms, inflation can be the result of a struggle for real income by competing social groups with workers asking for higher wages, business for higher profits and foreigners for higher prices for their products, e.

Aggregate demand may rise if there is an increase in consumption expenditure following a tax cut. By anticipating a certain increase of price level, consumer might be prompt to purchase now to avoid the increase so boosting demand and possibly provoking a rise in price, through a feedback dynamics of "self-fulfilling prophecy", whose exact dimensions are however erratic and unstable.

It is clear that someone wins and someone loses during inflation.

Effects of inflation

AD1 is the initial aggregate demand curve that intersects the aggregate supply curve AS at point E1. From that table, pick up the corresponding CPI figures for of the given two months. Further, even if it is anticipated it cannot be perfect. Inflation is measured in a variety of ways depending upon the types of goods and services considered and is the opposite of deflation which indicates a general decline occurring in prices for goods and services when the inflation rate falls below 0 percent. In absence of central bank reaction, it is for example common that inflation tends to provoke currency devaluation , opening a vicious circle. Pros and Cons of Inflation Inflation is both good and bad, depending upon which side one takes. For this reason, the Fed doesn't set a specific goal for maximum employment, and it is largely determined by members' assessments. Another concept of note is the potential output sometimes called the "natural gross domestic product" , a level of GDP, where the economy is at its optimal level of production given institutional and natural constraints. This can be explained graphically. Profit margin, however, may not be high when the rate of inflation climbs to a high level. With more money available to individuals, positive consumer sentiment leads to higher spending. However, if in an inflation-ridden economy creditors chronically loose, it is wise not to advance loans or to shut down business. The percentage tells you how quickly prices rose during the period.

If the purchasing power of money remains the same over the years, there may be no difference in saving and spending. Overall, each index represents the average weighted cost of inflation for the given constituents which may apply at the overall economy, sector or commodity level.

It records the prices of 80, consumer items each month.

inflation causes

Exchange Rates Inflation can be made worse by our increasing exposure to foreign marketplaces.

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Inflation Definition