“Inflation is inevitable like death” are the words of a renowned economist. The presence of this phenomenon is world – wide. When we look back on the history of mankind we find that prices have been rising due to war, external aggression, famine and natural calamities.
Inflation is a situation which can be characterized by an increase in general price level over a period of time, which may generate expectation of a further rise.
In a case when there is an increase in income and wages, the demand will keep on rising. But, as the investment does not fructify immediately there is no proportionate increase in goods and services. Hence “too much money chases too few goods” and as a result the general price level keeps on rising.
It is a state when:-
Increase in General purchasing power is > Goods and Services available in the market.