Inflation and Interest Rates
Inflation is an increase in the prices of goods and services and a fall in the purchasing power of a currency. Inflation can result when demand for goods and services outstrips their supply. This usually occurs near the end of an expansionary phase, when too much money is chasing too few goods. Inflation can occur because of:
- • High consumer confidence in the economy
- • An economy that has reached its production potential
- • Excess money in the economy
- • Increases in wages and other production costs, such as a rise in commodi