Inflation
What is it?
It is the sustained and general increase in the prices of goods and services in an economy over time. Inflation reduces the purchasing power of money, which means that over time, more money is needed to buy the same amount of goods and services.
This economic phenomenon affects all sectors of the economy, impacting both consumers and businesses. For consumers, inflation means that the cost of living rises, which can reduce their purchasing power. On the other hand, businesses face the challenge of adjusting their prices and operational costs, which can affect their profit margins.
Key aspects to consider
Inflation is commonly measured through indices such as the Consumer Price Index (CPI), which calculates the average price of a representative basket of goods and services. Although moderate inflation can be a sign of a growing economy, uncontrolled inflation can have negative effects, such as the erosion of purchasing power, greater economic uncertainty, and distortions in relative prices.
Central banks prioritize controlling inflation by using monetary policy tools, such as interest rates, to maintain economic stability. In this regard, low and stable inflation is key to fostering sustained economic growth, while excessive inflation can generate uncertainty and harm both consumers and businesses.