We buy goods and services with our money. Goods are things like clothes and food. Services include items like paying someone to fix your car or deliver a pizza to your front door. Inflation is when the price is going up on goods and services for months or years at a time. If you don’t make more money at the same time prices are going up, you need to adjust your spending habits.
The government tries to help control inflation by making sure there is an adequate supply of money in the economy. One way to do this is to cut interest rates so banks can lend money at a lower rate. This encourages people to spend more. This is called demand-pull inflation. When there is more money available but the same amount of goods or services to purchase, then prices tend to go up.
The other type of inflation is called stagflation. If a company has to spend more on its supplies to make what they are selling but don’t make more money, they look for ways to cut expenses. One of those ways is to cut staff, so unemployment numbers can go up. Stagflation is when both the prices on goods and services go up while unemployment numbers increase.
What is most important is that you realize when inflation is happening so you can adjust your spending habits to avoid getting too much debt.
