what is Inflation

Inflation is the increase in cost of goods or services.
There was a time when people used to enjoy a fast growing economy, but everyone has
realized that it has it’s own set of problems, with decrease in unemployment companies are
forced to pay more for valuable employees and cost of goods and services are increased to
accommodate increased costs. Inflation basically happens when for a limited supply of goods
and services people are willing to pay more, a bidding war starts and prices of most of the
products and services increase. Then workers & commodity suppliers demand more money to
buy the same services which they bought for less last time, this fuels a unsustainable cost and
price increase which continues until the bubble burst of the cycle. Resulting in recession in
some cases or slowing of growth. This hurts the ones with fixed income because they cannot
increase their supply of value to sustain the same standard of living which they were enjoying
before inflation. When central banks see inflation beyond tolerable levels, they, as a first line
of defense against inflation slow down the economy by increasing interest rates. It does two
things, first by increasing interest rates they make it more expensive for people to buy products
or services, thereby practically decreasing demand for it. Resulting in lower sustainable prices
for everyone. Secondly by increasing interest rates they force banks to increase their deposit
rates for money thereby making it more