Inflation is a
progressive increase in the general level of prices in an
economy. The
rate of inflation is the rate at which general prices are rising.
In the case of consumer goods, the Retail Price Index is used to measure that rate.
Inflation can cause problems for businesses because price rises may make their products less competitive in world markets.
The two main causes of inflation have been identified as:
- Cost-push inflation, when rising costs lead to rising prices, which leads to rising costs and so on.
- Demand-pull inflation, where excessive demand in a sector of the economy pulls up prices, which pulls up costs, and so on.