I don’t quite get it, I understand its related to change in prices over time, by does it occur at a steady rate or is it dependent on external factors?
In: Economics
If demand increases faster than something can be produced, the price will increase. Supply & demand.
Inflation is very simply, *the average price increase for all goods in the economy*. In the US, it’s even calculated by looking at a shopping cart of common items and comparing it to last year’s shopping cart.
It’s dependent on **a lot** of external factors, but the two main ones are the following:
**An increase in money supply.** If people have a lot more money in their hands, they’ll pay more for goods, and that’ll drive up the price.
If interests rates are low for example, people borrow more, people will have more money in their hands, and demand increases.
**Demand increasing faster than productivity.** In the 1970s people kept getting bigger and bigger raises, but there simply weren’t enough goods in the economy for people to buy.
Productivity had not kept up with the amount of money people made, an example of too much money chasing too few goods, basic supply-demand.
As a result, the price of *everything* in the shopping cart increased, which equals inflation.
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