Inflation
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Inflation
The broad increase in the price of goods and services. This results in a decrease in customers' purchasing power. Customers buy less than what they were able to buy before. This increase is not limited to goods and services alone but also to the country's economy.
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Deflation
When the cost of goods and services decreases and purchasing power increases meaning customers can buy more with less.
This is caused by :
• Increase in productivity of goods and services
• A decrease in demand
• A decrease in the supply of money and credit
Although this might seem like a positive scenario it may also indicate a weakening economy.
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The Economy
Inflation within the wage growth can stimulate demand, boosting productivity and increasing spending.
However, when inflation surpasses wage growth it may indicate that the economy is in trouble. In a healthy economy, inflation normally ranges between two percentage points(
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Cause of Inflation
When the customer demand for goods and services exceeds the supply in the market
When there's an increase in the prices for raw materials and inputs for the final product on the side of the producer. Producers have to increase their prices so consumers have to pay more for the price increase.
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Consumers & Companies
Consumers: lose purchasing power with the rise of prices of goods and services meaning they buy less
Companies:Increase prices for goods and services as they lose buying power for the input material they require for finished products.
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Customer Price Index(CPI)
This is how inflation is measured.
• CPI measures the overall change in consumer prices based on a representative basket of goods and services over some time.
• The CPI is the most widely used measure of inflation and deflation, closely followed by policymakers, financial markets, businesses, and consumers. (INVESTOPEDIA)
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CURATOR'S NOTE
Inflation in a nutshell : Credit to Karla Brown
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