What is inflation?

In a Market Economy, the price of goods and services change constantly. While some prices go down others go up. The term inflation is used when there is a generalized increase in the prices of goods and services. The result of that price rise is, for instance, that you buy fewer things with 20€. In other words, 20€ are less worth than some time ago.

When we calculate the inflation, the prices of goods in which you spend more (fuel, for instance) have a bigger weighting than the goods in which you spend less (coffee or envelops, for instance).

Every household has different consumer habits: some people have a car and eat meat while other ones just travel on public transports and are vegetarians. The weighting of the several products and services within the measure of calculation of inflation is determined according to the consumer expense mean of the set of families.

It is used a “basket” of goods to represent the goods and services consumed by families for a year. Each one of the products included in the “basket” has a price, which can change as time passes by. The homologous inflation rate is the price of the whole basket in a certain month compared to its price in the same month a year before.

One of the causes for inflation is the increase of the currency-paper by the government so as to pay the state expenses. When it happens there is a bigger volume of money circulating in markets, but there neither the creation of wealth nor a production increase. In such situations, it is required a bigger amount of money in order to obtain the same amount of goods, leading to inflation. Other causes for inflation are related to the excessive price rise of a basic good as it happens with electric power or petrol or else, to the excessive increase on consume leading to the increased search for the product and, consequently, its price.

There are countries where we assist to a rampant (very high) inflation. For instance, in a country having an inflation of 10% per month, a worker who buys five kilos of potatoes per month pays 10€. The following month he will pay 11€. for the same amount of potatoes. As his/her salary is not monthly adjusted, his/her consumer power will diminish.

Check out our List of Questions to get to know a little more about the most diverse topics related to mathematics. If you have any pertinent (math) question whose answer can not easily be found, send us an email on the Contact page with the question. We will be happy to respond. In the event that you detect any errors in our answers, do not hesitate to contact us!