What Is Inflation?

Inflation is a term used to depict an increase of average prices through the economy. It means that money is losing its power. In other words, when prices keep on rising because of overheated economic growth or lots of wealth in the marketplace chasing very less opportunities is known as inflation. Usually salary increases so that organizations can hold on good employees. But unfortunately salary rises more slowly as compare to the prices of the commodities. So at the end people life style actually decreases.

Inflation refers to a situation in shich prices of goods and services persistently increase.
Apart from poverty and growing unemployment Indian economy also suffers from the problems of persistent rise in prices.
Following are the causes of price rise:
- Black marketing.
- Black money.
-Rapid growth of population.
-Deficit financing.
- Increase in money supply.
Inflation is measured with the help of following indicators:
1. Wholesale price index (WPI)
2. Consumer Price Index(CPI)
3. Gross Domestic Product(GDP)

Inflation is the state in which an economy sees a general increase in the prices of goods. Inflation also means decline in purchasing power of general public. When an economy is suffering from high inflation, it means that value of real money declines. Before inflation people were buying goods in exchange of fewer units of currency now (after inflation), people have to spend more to buy the same number of items. Inflation results in increase in monetary base of the economy and government should use contractionary monetary policy to avoid the adverse effects of inflation. It can have adverse effects such as if inflation is expected to be high in future, it might discourage investors to invest in the economy in the long run.