Understand
the Economy and Banking

Inflation is the increase in the prices of goods (food, electricity, fuels, etc.) and services (a haircut, a train ticket, a coffee, etc.).

General price increases
This does not only concern some specific goods or services, but is a widespread phenomenon involving the entire economy.

Persistence
This is not a temporary or episodic increase in prices, but a sustained trend over time.

Reduction in purchasing power
As prices increase, the real value of money decreases and, therefore, fewer goods or services can be purchased with the same amount of money.

Measurement through price indexes
Inflation is often measured through the consumer price index (CPI) or the producer price index (PPI). These indexes calculate the percentage change in the prices of a basket of goods and services representative of the average consumption of households or industrial production.

Demand-pull inflation
Occurs when the overall demand for goods and services exeeds the supply in an economy. This imbalance between supply and demand leads to an increase in prices.

Cost inflation
Occurs when production costs increase (for example, due to increased prices of raw materials or wages) and producers transfer these costs to the final prices of goods and services.

Structural inflation
Linked to structural factors of the economy, such as inefficiencies in the labour market or imbalances between the various production sectors.

Imported inflation
Caused by the increase in the prices of imported goods. For example, if the price of oil increases internationally, the cost of goods produced with oil will also increase.

Erosion of savings
Inflation reduces the real value of money saved, penalising savers.

Economic uncertainty
Situations of highly variable inflation generate uncertainty in the economy, negatively affecting investment and economic growth.

Currency devaluation
Under certain conditions, inflation can lead to a change in the exchange rate of the national currency against other currencies, with effects on the average price of goods and services and on international trade relations.