Inflation is an increase in the overall level of prices in an economy over a period of time. When the price of goods and services goes up, the purchasing power of money goes down, meaning that people need more money to buy the same things they could have bought before. Inflation is typically measured as an annual percentage increase, and it is usually measured using the consumer price index (CPI), which tracks the prices of a basket of goods and services that are commonly purchased by households.
What inflation is actually healthy to an economy?
Why inflation is bad?
Inflation can be bad for a number of reasons. First, it can erode the purchasing power of money, which means that people need more money to buy the same goods and services. This can lead to higher living costs and make it difficult for people to afford the things they need. Second, high levels of inflation can be destabilizing for an economy, as it can lead to uncertainty and unpredictability, which can in turn lead to a lack of confidence in the economy and discourage investment and spending. Finally, high levels of inflation can lead to higher interest rates, which can make it more difficult for individuals and businesses to borrow money and can slow economic growth.
Hyperinflation
Hyperinflation is a situation in which prices for goods and services rise rapidly and out of control, resulting in a severe decline in the purchasing power of money. This can happen when an economy is experiencing a large increase in the money supply, combined with a lack of confidence in the currency, leading to a rapid decline in the value of the money. Hyperinflation is often associated with times of war or political instability, and it can have severe negative consequences for an economy, including a decline in production and trade, a decrease in the value of assets, and social and political unrest.
