Inflation 101-Understand inflation and how it impacts you

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Highlights

  • Inflation is the fall in purchasing power of a currency and is given in percentage, depicting the rate of fall in the currency's value.
  • There are three types of inflation: demand-pull inflation, cost-push inflation and built-in inflation.
  • Inflation is not always bad for the economy. Some degree of inflation is often necessary for the growth of an economy.

Ever since the world economy has entered the recovery period after the Covid-19 pandemic’s aftermath, the news of high inflation is flashing across global media houses. The US is running on 40-year high inflation. Most other countries are drenched under skyrocketing prices. Consequently, federal banks are raising interest rates. Since high prices overpower the world, it is important to understand how inflation works and how it can impact our pockets.

So, what is inflation?

Inflation is the fall in purchasing power of a currency. In short, the value of that currency falls, which means lesser goods will be bought with a particular amount. The opposite of the same is called deflation, in which the purchasing power for a specific currency rises. Inflation is given in percentage, which shows the rate of fall in the currency's value.


 


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