INFLATION

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. 

In other words, a decline in the purchasing power of your money". But there is more to inflation than that. There is "Price Inflation" and "Monetary Inflation".

Technically, Price Inflation is when prices get higher or it takes more money to buy the same item.

CAUSES OF INFLATION

There are a few different reasons that can account for the inflation in our goods and services; let's review a few of them.

• Demand-pull inflation refers to the idea that the economy actual demands more goods and services than available. 
• The cost-push theory , also known as "supply shock inflation", suggests that shortages or shocks to the available supply of a certain good or product will cause a ripple effect through the economy by raising prices through the supply chain from the producer to the consumer.
• Money supply plays a large role in inflationary pressure as well. Monetarist economists believe that if the Federal Reserve does not control the money supply adequately, it may actually grow at a rate faster than that of the potential output in the economy, or real GDP.

EFFECTS OF INFLATION

The effects of inflation can be brutal for the elderly who are looking to retire on a fixed income. The dollars that they expect to retire with will be worth less and less as time goes on and inflation goes higher.

When the balance between supply and demand spirals out of control, buyers will change their spending habits as they meet their purchasing thresholds and producers will suffer and be forced to cut output. This can be readily tied to higher unemployment rates. When extremes arise in the supply/demand structure, imbalances are created.

INFLATION IN COLOMBIA