What is inflation?
Inflation is defined as the general rise in the prices of goods and services over time. This means that the value of a dollar will decline over time because more dollars are needed to buy the same amount of goods and services as it was in the past.
If inflation continues at its current rate, the price of food, clothing, housing, and other necessities will continue to go up. As a result, people who spend a large portion of their income on these items will see their purchasing power decrease.
- the action of inflating something or the condition of being inflated.
“the inflation of a balloon”
- ECONOMICS: a general increase in prices and fall in the purchasing value of money.
“policies aimed at controlling inflation”
Merriam Webster Online
a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.
In economics, inflation is a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of inflation is deflation, a sustained decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose. The employment cost index is also used for wages in the United States.
How to protect yourself from inflation?
Protecting yourself against inflation means making sure you have enough money to cover your expenses. This includes having savings, paying down debt, and investing in assets such as stocks and bonds. You should also try to avoid spending too much money on things that aren’t necessary.
The role of the Federal Reserve in fighting inflation
The Federal Reserve is responsible for setting interest rates and regulating banks. They do this by controlling the supply of money in the economy. If the Fed raises interest rates, it makes borrowing money more expensive and less likely. This reduces demand for loans and slows the growth of the economy. On the other hand, lowering interest rates encourages people to borrow money and spend it. This stimulates the economy and leads to higher consumer spending.
What causes inflation?
Inflation is caused by two things: 1) the number of dollars chasing fewer goods; 2) the rate at which those dollars chase those goods.