What is Inflation?

The current financial turbulent times has seen most people wondering what inflation is. Inflation is in fact the increase in the prices of products and services and also the continuous increase in the prices of these products and services. Inflation usually occurs when the currency of the country has been devalued and hence the population of the country end up paying more for the products and services required.

Experts usually concur that when the inflation is mild the economy grows at a healthy rate. Since the population of the country buys products and services now to prevent excessive spending in the future due to price rises the current demand increases. This current demand helps the economy of the country grow. Hence any economy can sustain an inflation rate of at least 2 percent.

Causes of Inflation:

Inflation can occur due to a variety of reasons. However the main reason for the inflation is the demand and supply factor. In case there is more demand for products and services but the supply remains static the price increases thus causing inflation. Similarly inflation is also caused due to excessive money supply in the hands of the general public. When the money supply with the general public increases the demand for products and services increases, but since the supply remains the same the prices of the products and services shoot up causing inflation.

Types of Inflation:

There are also many types of inflation with asset inflation being the most commonly occurring inflation in many countries. US has seen asset inflation in the real estate sector while the Middle East oil rich countries experience asset inflation with respect to the prices of crude oil. Other types of inflation include hyperinflation experienced in Germany before World War II and stagflation which was experienced in USA in the early to mid 1970s.