Economics For Dummies, 4th Edition

Chapter 15

Inflation Frustration: Why More Money Isn’t Always Good

IN THIS CHAPTER

Risking inflation by printing too much money

Measuring inflation with price indexes

Adjusting interest rates to account for inflation

Inflation is the word economists use to describe a situation in which the general level of prices in the economy is rising. Although some prices may stay the same and a few may fall, the majority of prices rise.

Inflation is typically mild, with the overall level of prices rising only a small percentage each year. But people dislike even mild inflation because — face it — who likes paying higher prices? Mild inflation also causes problems such as making retirement planning difficult. After all, if you don’t know how expensive things will be when you retire, calculating how much money you need to be saving right now is hard.

Things can go from bad to worse if inflation really gets out of control and prices begin rising 20 or 30 percent per month — something that has happened in more than a few countries in the past century. Such situations of hyperinflation usually accompany a major economic collapse featuring high unemployment and a major decrease in the production ...