how inflation impacts consumers
while it is easy to measure the price changes of individual products over time human needs extend beyond just one or two products individuals need a big and diversified set of products as well as a host of services for living a comfortable life they include commodities like food grains metal fuel utilities like electricity and transportation and services like healthcare entertainment and labor inflation aims to measure the overall impact of price changes for a diversified set of products and services it allows for a single value representation of the increase in the price level of goods and services in an economy over a specified time prices rise which means that one unit of money buys fewer goods and services this loss of purchasing power impacts the cost of living for the common public which ultimately leads to a deceleration in economic growth the consensus view among economists is that sustained inflation occurs when a nation s money supply growth outpaces economic growth the increase in the consumer price index for all urban consumers cpi u over the 12 months ending may 2024 on an unadjusted basis prices were flat on a seasonally adjusted basis in may 2024 from the previous month to combat this the monetary authority in most cases the central bank takes the necessary steps to manage the money supply and credit to keep inflation within permissible limits and keep the economy running smoothly theoretically monetarism is a popular theory that explains the relationship between inflation and the money supply of an economy for example following the spanish conquest of the aztec and inca empires massive amounts of gold and silver flowed into the spanish and other european economies since the money supply rapidly increased the value of money fell contributing to rapidly rising prices inflation is measured in a variety of ways depending on the types of goods and services it is the opposite of deflation which indicates a general decline in prices when the inflation rate falls below 0 keep in mind that deflation shouldn t be confused with disinflation which is a related term referring to a slowing down in the positive rate of inflation investopedia julie bang