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Causes And Effects Of Inflation

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Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. The value of a dollar is observed in terms of purchasing power, which are the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar can 't buy the same goods it could beforehand. Inflation is caused by a variety of factors, but most of them are related to interest and debt. When the Federal Reserve Bank raises interest rates, it causes the dollar to inflate. There is more money in the system, so every dollar is worth just a little bit less. Inflation which is the percentage change in the value of the Wholesale Price Index (WPI) on a year-on year basis is effectively measures the change in the prices of a basket of goods and services in a year. Inflation is normally calculated by taking the WPI as base which is as formula below.
(WPI in month of current year-WPI in same month of previous year)
-------------------------------------------------------------------------------------- X 100
WPI in same month of previous year Based to the theories of inflation, inflation occurs due to an imbalance between demand and supply of money, changes in production and distribution cost or increase in taxes on

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