Understanding Inflation:

Causes, Effects, and Solutions

Inflation is one of the most talked-about economic terms, but it is yet to be clearly understood by most. Simply put, inflation refers to the rise in the general price level of goods and services over time, which erodes purchasing power. When inflation happens, each unit of money is able to buy fewer goods and services compared to before. It's a natural phenomenon of modern economies but can have serious effects on people, companies, and countries.

In this article, we’ll break down what inflation is, its causes, its effects on the economy, and ways governments and central banks try to control it.

What is Inflation?

Inflation is a condition in which the overall level of prices for goods and services in an economy increases over some horizon. It is typically measured with the aid of a

price index, which tracks prices for a designated list of goods and services through time. Two well-known gauges of inflation are:

1. Consumer Price Index (CPI):

It measures the urban consumers' average price change for a market basket of goods and services.
2. Producer Price Index (PPI)…