BRIEF: INFLATION AND INTEREST RATE
Inflation is a sustained increase in general price level, and as a consequence, it reduces the purchasing power of money. Inflation is commonly measured using the Consumer Price Index (CPI), which tracks the mean changes in prices of selected basket of goods and services within a specified period. In preliminary economics, inflation is considered a risk, just as it is considered a cost to businesses. Inflation erodes the value of a currency. In an economy or business environment where the rate of inflation continues to rise, that would mean the value of money today is worth more than it would be in the future. Three things could potentially happen in consumer behaviour response to inflation; one is that, consumers would prefer to spend the money today to avoid spending more on a later date than they would ordinarily spend for the same basket of goods and services. Consumers can choose to save, and they can also decide to invest. On savings and investments, the attraction would be the s...