The “Flations” consist of two very common terms: Inflation and Deflation. But within this three-part series, Stagflation will also be discussed. An understanding of each of these terms is important to not only the financial markets but to all individuals as well.
When the word Inflation is used, one’s first reaction is that prices are going up. And that is a correct thought pattern considering the definition of Inflation is just that – an overall upward swing in prices on the goods and services purchased by consumers.
The cause of inflation is generally an increase in the monetary supply which will over time limit the purchasing power of the consumer as the value of the currency used will fall or weaken and thus people will be unable to buy the same amount this week as they did last week, month or year.
Government policies and procedures are set up to combat drastic fluctuations in inflation and usually in the U.S. the inflation rate is between 2 and 3 %.
Stay tuned for Part II – Deflation.
All the Best,
The Capital Corp Team
Capital Corp Merchant Banking 