What is inflation? What causes it?

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It is measured by the Consumer Price Index (CPI), which is calculated by comparing the cost of a predetermined basket of consumer goods and services from one period to the next.

An increase in the money supply: When the money supply increases due to government printing of more money, it increases the demand for goods and services, pushing prices up.

Increase in the cost of production: A rise in the cost of production of goods and services can lead to an increase in prices. This can be caused by rising energy costs, increases in the cost of raw materials, or labor costs.

High demand: An increase in demand for goods and services can lead to inflation due to limited supply.

Exchange rate fluctuations: Changes in currency exchange rates can cause prices to fluctuate, leading to inflation.

Monetary policies: Interest rate changes by the central bank can increase the money supply and lead to inflation.

Tax changes: Changes in taxes can affect the cost of production and lead to higher prices.

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