What is Inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as a percent increase in the cost of goods and services. Mackintosh writes that “Doubling up production and supply chains directly reduces productivity, meaning more Inflation for the same amount of output.” Inflation can be caused by a variety of factors including an increase in the money supply, rising wages, increased government spending, and oil prices. As of this writing, there is no agreed-upon definition of supercore Inflation, but when people talk about it they typically mean Inflation that is higher than the rate the central bank targets.
How Does Inflation Impact the Economy? Inflation impacts the economy in a number of ways. In November, the State Bank of Pakistan's Monetary Policy Committee unexpectedly pushed up its key rate by 100 bps, meaning it has now moved up to 11.5 percent to tackle rising Inflation. This is because high Inflation can lead to higher interest rates, as central banks try to curb the rising costs. Inflation can also lead to higher unemployment, as businesses may struggle to afford higher wages.
Inflation and Purchasing Power Inflation was the most pressing concern of Americans in 2022 as prices across the board steadily rose. “There is no fixed definition of quality, as it really depends on a person's individual circumstances,” said one consumer. “But prices were definitely going up, and it was getting harder to find bargains.” This is because spending power during periods of high Inflation decreases, which, by definition, we measure in terms of the monetary unit of account: dollars in the US, euros in Europe, and so on.