Inflation

Inflation is the general increase in the price of goods and services. When inflation rises, purchasing power falls. Two theories for the causes of rising inflation include demand-pull, which says that demand rises faster than supply so prices go up, and cost-push, which says that the increase in wages and materials is pushed to the consumer making everything more expensive. The Federal Reserve Bank decides the interest rate taking into account inflation. The Fed keeps the rate low to foster growth (and inflation) or sets the rate higher to curb future inflation. Despite popular belief, inflation is not inherently bad. It is too much or too little inflation that causes ill effects.