What is Inflation?

What is inflation? What does rising inflation mean? How does inflation affect purchasing power?

Inflation, in the most basic terms, means an increase in the prices of goods and services. Of course, the prices of goods and services can increase or decrease over time. However, inflation is not just an increase in the price of a particular good or service, but a continuous increase in the level of prices. In other words, the continuous increase in the prices of only some goods or the increase in the prices of all goods once does not mean inflation. For example, a monthly inflation rate of 1 percent indicates that the general level of prices increased by 1 percent in that month compared to the previous month. The fact that the annual inflation is 30 percent means that the prices have increased by 30 percent on average compared to the previous year. Lower inflation; Lowering prices does not mean an increase in people's purchasing power or their income. Lower inflation means less rise in prices and as a result, stability and prosperity.

Does Inflation Affect Rates?

Inflation rates are also highly effective on exchange rates, as they can directly affect the moves that central banks can make in monetary policies. Because the inflation rate is the leading indicator for the changes to be made by the central banks on the interest rates. For example, while the expectation of an increase in interest rates comes to the fore if the inflation rates deviate upwards from the targets of the central banks, the expectation of a decrease in interest rates comes to the fore if the inflation rate is below the targets of the central banks.