Inflation: Definition, Types, Causes & Effects

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  • 0:01 What Is Inflation?
  • 1:05 Types of Inflation
  • 2:21 Effects
  • 3:08 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

In this lesson we will take a look at inflation and its importance. We will discuss the types and causes of inflation, as well as look at the effects of inflation.

What Is Inflation

I am sure you have certain products you buy on a regular basis. Perhaps those products are your favorite snack or drink at the grocery store, such as a soda and a candy bar. Imagine, for the last year you have always been able to buy both items for only two dollars. However, one morning you swing into your local grocery store before work to grab your soda and snack and realize you do not have enough money. All of a sudden, the two dollars you have in your wallet is no longer enough to pay for your items. The new total is now $2.10. What you have just experienced is inflation.

You may be asking yourself, why do our favorite products keep increasing in price? Well, the answer to that question is inflation. Inflation is the rate of increase of the general level of prices for goods and services. In other words, it is the term used when the prices for goods and services increase over time. For example, if the inflation rate is 3%, then a $1 can of soda will cost $1.03 a year from now. When inflation occurs, money buys a smaller percentage of a good due to the increase in price.

Types of Inflation

Now that we know what inflation is, let's take a look at the different types and causes of inflation. While there are a few different types of inflation, we will focus on the two main types: demand-pull inflation and cost-push inflation.

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