What is inflation?

Inflation is a persistent rise in the general level of prices of all good and services taken together. Inflation results in loss of value of money. Reduce in the purchasing power of money.

How inflation is measured?

Price Index : A number of goods that are representative of the economy are put together into market basket. It is then compared over time. There are different types of price indices to measure the inflation. Consumer Price Index (CPI) Wholesale Price Index (WPI) Producer Price Indexes (PPI)

Causes of inflation
Mainly inflation is caused based on the availability of money in the market, it is also effected by fluctuation of wages, prices and interest rates. There are three major types of inflation

Demand-pull inflation Cost-push inflation Built-in inflation

Effects of inflation

There are some positive effects and some negative effects of inflation on the economy. Inflation will keep economy active in short run by encouraging spending and borrowing. But in the long run inflation reduces the incentives to save, so the effects of saving and investment is negative.

Policies to control inflation

Economies generally use two types of policies to control the inflation. Monetary policy used by the central bank of the country or particular economy to control the inflation. Fiscal policy used by the government of particular economy to fight the inflation.

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