Inflation

Inflation is an economic phenomenon characterized by the general increase in prices for goods and services over time, which leads to a decline in the purchasing power of money. In other words, as inflation rises, each unit of currency buys fewer goods and services than it did previously. Inflation is typically measured by the Consumer Price Index (CPI) or other similar indicators, and it can be influenced by various factors, including an increase in the money supply, rising production costs, or increased demand for goods and services. Central banks use monetary policy tools, such as adjusting interest rates, to manage inflation and maintain economic stability.

Inflation can have both positive and negative effects on an economy. Moderate inflation is generally considered a sign of healthy economic growth, as it encourages spending and investment. However, high inflation can erode savings, reduce the purchasing power of consumers, and create uncertainty in the economy. Hyperinflation, an extreme form of inflation, can lead to the collapse of a country's currency and economic system, as was seen in cases like Zimbabwe and Venezuela. Managing inflation is a critical responsibility of central banks, which use tools like interest rate adjustments and money supply control to keep inflation in check.

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