What does rising inflation mean


Inflation. Key data on price developments in Germany

ongoing process of monetary devaluation, which is noticeable through general price increases. One monetary unit can then be used to buy less and less, i. That is, the purchasing power (see there) of money is constantly decreasing. One-off, temporary price increases caused by unusual occurrences (e.g. bad harvests, strikes) and price increases for certain goods or production factors are not considered inflation. Inflation is measured by the rise in a price index that best reflects the general price level (see there) such as B. the consumer price index for Germany. The percentage increase in the price index over a certain period is called the inflation rate (see there).

When inflation occurs, the amount of money in the economy plays a particularly important role. If the macroeconomic volume of goods is offset by too large a money supply (inflation of the money supply), one condition for inflation is given. If the aggregate demand for goods exceeds the aggregate supply of goods, which cannot be increased in the short term, prices rise and inflation sets in. The price increases trigger rising wages, because of the higher income the demand for goods increases. However, the higher wages also lead to rising costs for companies, which in turn leads to increases in the price of goods. In addition, the rise in prices is additionally intensified by the increased demand. As a result, wages rise and then prices rise. A wage-price spiral arises (see there). Since in such a situation the fear of further price increases and the loss of the money saved grows in the population, many spend their money as quickly as possible on the purchase of goods or invest money in property to maintain their value (escape into property) before new price increases lead to further losses in purchasing power. Inflation can therefore permanently increase itself.

According to the speed of the process of inflation (rate of inflation) a distinction is made between creeping inflation (see there), trotting inflation (see there), galloping inflation (see there) and hyperinflation (see there). According to the recognizability, a distinction is made between open inflation (see there) and hidden or backed-up inflation (see there), according to the trigger for the price increases, supply-related inflation (see there) and demand-related inflation (see there).

Inflation leads to the devaluation of savings with the result that the propensity to save in the population declines or the money saved is invested in real assets. This limits the ability of banks to lend to companies to finance investments. Production restrictions and unemployment are the result.

Inflation particularly affects those people who cannot adapt their income to rising prices, e.g. B. Unemployed or pensioners. Preventing inflation is an important goal of economic policy.

Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life. 6th edition. Mannheim: Bibliographisches Institut 2016. Licensed edition Bonn: Federal Agency for Civic Education 2016.