What is inflation?

Inflation is the continuous rise in the general price level for the overall goods and services in the economy. Inflation reflects a decrease in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may depress investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include dropping unemployment due to nominal wage rigidity. Inflation is used to increase the economic terminology.

To avoid the loss of inflation and its effective control, it is necessary to measure it. Different economies use different indices to measure the inflation rate. There are several types of indices such as whole sale price index, consumer price index and national income deflator in India. Inflation measured by proportional change or percentage change occurring over time in a fixed price index.