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Inflation in Canada Recessions and unemployment are trouble enough but many people in the modern world see a danger in too much prosperity The danger is inflation Inflation is defined as an increase in the average price level in the economy The amount of inflation is measured by the consumer price index CPI and producer price indexes PPI As inflation goes up there is a decline in the purchasing power of money Investopedia 2002 P2 Thinking in terms of supply and demand price inflation could be caused in one or both of two ways Prices in general would only rise if supply decreases or demand increases When demand increases and this causes inflation this is described as demand-pull inflation On the other hand when cost increases and this causes supply to decrease in turn and this result in inflation we described it as cost-push inflation A demand-pull inflation would lead to cost increases which then lead to further cost-push inflation William-king 1997 P1 Economists argue inflation as a problem in the economy It is proven that inflation creates uncertainty in that people do not know what the money they earn today will buy tomorrow Uncertainty in turn discourages savings and investing Inflation is also said to be a hidden tax on nominal balances That means people who hold bonds and bank accounts in dollars lose the value of those accounts when inflation occur just as if their money had been taxed away William-king 1997 P2 Hyperinflation and stagnation are the other two types of inflation that are very negative to the economy Stagnation is a combination of high inflation and high unemployment It might be caused if fewer people choose to work and plus inflation is happening Hyperinflation refers to a very rapid very large increase in the price level It is caused by extremely high inflation and it can possibly breakdown a countrys monetary system William-king 1997 P4 Most people think inflation is
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