Factors which causes Inflation (Factoring affecting Demand and Supply)

Inflation is the rate at which the the value of a currency is falling and consequently the general level of prices for goods and services is rising. Most commonly used inflation indexes are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).

If inflation becomes too high, the economy can suffer; conversely, if inflation is controlled and at reasonable levels, the economy may prosper. With controlled, lower inflation, employment increases. Consumers have more money to buy goods and services, and the economy benefits and grows.

• Increase in Money Supply:
• Increase in Disposable Income:
• Increase in Public Expenditure:
• Increase in Consumer Spending:
• Cheap Monetary Policy:
• Deficit Financing:
• Expansion of the Private Sector:
• Black Money:

Inflation leads to mal-investments. When prices rise, the value of certain investments increases faster than others. For example, prices of existing houses, land, gold, silver, other precious metals, and antiques increase with higher rates of inflation.

Inflation is an increase in the level of prices of the goods and services that households buy. It is measured as the rate of change of those prices. Every quarter, the ABS calculates the price changes of each item from the previous quarter and aggregates them to work out the inflation rate for the entire CPI basket.

Considering the annual inflation rate in the United States in recent years, a 2.25 percent inflation rate is a very moderate projection….Projected annual inflation rate in the United States from 2010 to 2026*

The U.S. Bureau of Labor Statistics (BLS) uses the Consumer Price Index (CPI) to measure inflation. The index gets its information from a survey of 23,000 businesses. 11 It records the prices of 80,000 consumer items each month.

Over the long run, inflation does not affect the employment rate because the economy compensates for current and expected inflation by increasing worker compensation, causing the unemployment rate to move to the natural rate.

Top Seven Signs the Economy Is on Its Way to a Recovery

• Unemployment Continues to Plummet.
• Job Creation Continues to Gain Momentum.
• New Businesses Are Forming.
• Gross Domestic Product (GDP) is Recovering.
• Consumer and Producer Confidence are On the Rise.
• The Housing Market is Bouncing Back.
• The Stock Market is Recovering.

Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out.

When inflation is increasing, people will spend more money because they know that it will be less valuable in the future. This causes further increases in GDP in the short term, bringing about further price increases. If such a situation continues over longer period of time it leads to dis-savings.

Along the AD curve, real GDP increases and the price level decreases. In other words, AD slopes down. Changes in the price level will cause a movement along the AD curve.