| Inflation is a persistent rise in the prices of goods and services, caused by too much money chasing too few goods. Inflation can be caused by an increase in money supply or demand due to government spending or the printing of money, or by a contraction in the supply of goods. Different types of inflation are defined by their cause. Demand-pull inflation is caused by excess demand in the economy, while cost-push inflation is caused by increased costs of production. The rate of inflation is often a primary policy target of governments, and of central banks given policy independence to achieve a target rate. Moderate inflation is common in economies and can be regarded as relatively benign. If all inflation is removed and an economy slips into deflation it can stunt consumption because consumers postpone purchases in the knowledge that goods will become cheaper. Deflation also stunts demand for credit and makes repayment of existing debts more difficult because the value of money is increasing. |
