In economic terms, what exactly IS Inflation, and how does it effect the economy?
There are different sorts of inflation but the way we as consumers encounter them all is in terms of rising prices. Some inflation is caused by external factors, e.g. if the price of oil goes up, that affects manufacturing costs, transportation costs, etc and so prices tend to rise. Some inflation is caused by wage demands. This happens particularly when unions have a lot of power, e.g. as in the UK in the 1970s before Mrs Thatcher came to power. Higher wages means higher costs for everything that involves labour, i.e. all goods and services, and so higher costs for the consumer. The most insidious sort of inflation is caused by government expansion of the money supply (“printing money”). If the amount of money in the economy is increased, other things remaining equal, then prices will rise. This is because there’s more money chasing the same amount of goods and services. For a wonderful current example, see Zimbabwe. By and large the people who suffer most from inflation are those wit
