INFLATION: A sustained, rapid increase in prices, as measured by some broad index (such as Consumer Price Index) over months or years, and mirrored in the correspondingly decreasing purchasing power of the currency. It has its worst effect on the fixed-wage earners, and is a disincentive to save.
There is no one single, universally accepted cause of inflation, and the modern economic theory describes three types of inflation:
(1) Cost-push inflation is due to wage increases that cause businesses to raise prices to cover higher labor costs, which leads to demand for still higher wages (the wage-price spiral),
(2) Demand-pull inflation results from increasing consumer demand financed by easier availability of credit;
(3) Monetary inflation caused by the expansion in money supply (due to printing of more money by a government to cover its deficits).
Have you heard rumblings in the media from politicians and economists about the threats of inflation?
Why is it important to keep inflation in check?
What is the best way to ensure against inflation in a global economy?
Inflation is considered a good thing when it’s driving up savings interest rates because the interest paid on personal savings increases individual purchasing power. The reverse is true when the interest charge on borrowing money is inflated and causes the cost of purchasing a home, a car, and financing business growth more costly; inflation eats up personal disposable income and increases financial risk.
A strong dollar is one of the best ways to guard against inflation in America as confirmed by White House Economic Adviser, Larry Kudlow, in a recent interview with CNBC:
“ A strong dollar holds down commodity prices, gasoline prices are slipping, oil prices are slipping,” Kudlow said.