How To Guide For: A Look At Whether Inflation Will Continue To Rise & What Will Happen When It R

Inflation is the rate at which the general level of prices for goods and services is rising and therefore the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly. There are two types of inflation which cause an increase in the overall price level within an economy. The first type of inflation is Demand-Pull Inflation which results from strong consumer demand. Many individuals purchasing the same good will cause the price to increase, and when such an event happens to a whole economy for all types of goods, it is called demand-pull inflation. When the overall demand in an economy strongly outweighs the overall supply, prices go up. The second type of inflation is Cost-Push inflation which occurs when we experience rising prices due to higher costs of production and higher costs of raw materials. Cost push inflation is determined by supply side factors. Cost-Push inflation can lead to lower economic growth and often causes a fall in living standards, though it often proves to be temporary. How is inflation measured -- inflation is measured using the Consumer Price Index (CPI). Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services. This is used to evaluate the inflation that consumers face in their daily living expenses. Having a low inflation rate is preferred over no inflation at all. If inflation continues to rise interest rates will be increased by the Fed in order to slow economic growth to reign in inflation. This will change the incentive from investment and spending towards savings which will reduce GDP along the lines of consumer spending. To get more information on whether inflation will continue to rise and what will happen if it does click on the pictures below to read the articles.