INFLATION EXPLAINED QUEST EDUCATION 9891.344.571 / 9811.300.980

Definition of Inflation Inflation means a persistent rise in price levels of commodities and services., leading to a fall in currency’s purchasing power. A country is said to under pressure of inflation when the prices of most goods and services continue to creep upward. It is measured by Consumer Price Index (CPI), Wholesale Price Index (WPI), Retail Price Index (RPI).

How Inflation Affects Economy Inflation occurs when the total demand for goods and services in an economy exceeds the supply of the same. When the supply is less, the prices of these goods and services would rise, leading to a situation called inflation. Inflation affects the rich and poor and it poses a threat to the economy. When inflation affects economy, to maintain the same living standard you have to pay more for same amount of goods and services you had used prior to inflation. Remember that your income may not increase at same rate as inflation. People tend to save less in an economy affected by inflation because the price of services and goods are very high and there is nothing or very less left over income available to save.

Why does Inflation occur ? Some reasons for occurrence are: If the cost of production of goods and services increases, the price of the end product would also increase. There is a possibility of inflation when the business houses and industries increases their profit. Margins. Fiscal Inflation occurs when there is excess government spending.

Types Of Inflation Wage Inflation Cost-Push Inflation Demand-Pull Inflation Pricing Power Inflation Sectoral Inflation Fiscal Inflation Hyper Inflation

Measures to Control Inflation Reducing the central bank interest rates and increasing the bank interest rates. Controlling prices and wages Providing cost of living allowance to citizens in order to create demand in the market.

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