Inflation refers to a sustained and continuous rise in the general price level of goods and services in an economy over a period of time . It is typically measured by the percentage increase in a price index (such as the Consumer Price Index, CPI) over a specific period (e.g., year on year). Inflation reduces the purchasing power of money , meaning that with the same amount of money, consumers can buy fewer goods and services than before. Causes of inflation include: Demand pull inflation : Excess demand for goods and services relative to supply. Cost push inflation : Rising production costs (e.g., wages, raw materials) forcing prices up. Built in inflation : Wage price spiral where higher wages lead to higher prices and vice versa. Monetary factors : Excessive money supply growth without a corresponding increase in output. Inflation can be creeping (mild) , walking (moderate) , galloping (high) , or hyperinflation (extreme) . While low inflation is normal, high inflation erodes savings, distorts investment, and harms economic stability.

What is inflation? – Economics NEB 2076 (old course) Solution

Inflation shows a **sustained** rise in the general price level over time (e.g., from 100 to 150 in 5 years).

Inflation refers to a sustained and continuous rise in the general price level of goods and services in an economy over a period of time. It is typically measured by the percentage increase in a price index (such as the Consumer Price Index, CPI) over a specific period (e.g., year-on-year). Inflation reduces the purchasing power of money, meaning that with the same amount of money, consumers can buy fewer goods and services than before. Causes of inflation include:

Demand-pull inflation: Excess demand for goods and services relative to supply.
Cost-push inflation: Rising production costs (e.g., wages, raw materials) forcing prices up.
Built-in inflation: Wage-price spiral where higher wages lead to higher prices and vice versa.
Monetary factors: Excessive money supply growth without a corresponding increase in output.

Inflation can be creeping (mild), walking (moderate), galloping (high), or hyperinflation (extreme). While low inflation is normal, high inflation erodes savings, distorts investment, and harms economic stability.

What is inflation?

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