Helping Clients Understand Inflation

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What Is Inflation?

Inflation is a measure of how much prices for goods and services are rising in an economy.

Inflation can be caused by a number of factors.

Demand-pull inflation occurs when there is more demand for goods or services than the supply can meet. This allows companies to raise prices in the face of excess demand.

Cost-push inflation occurs when cost increases make it more expensive for companies to produce the same goods or services. Companies raise prices to maintain their profits.

Government or central bank policies can also impact inflation. If the money supply is increased or the government injects extra liquidity into the economy through stimulus programs, there is more money chasing the same amount of goods, which could cause prices to rise.

Even expectations about inflation can affect the rate of inflation. If workers expect more inflation, they may demand higher wages. Those wage increases may increase the cost of producing goods, which may result in higher prices. The expectations become self-fulfilling.