Inflation refers to the general increase in prices of goods/services, and is usually measured annually. There is no doubt that inflation exists, but perhaps the issue at hand is to understand the mechanism behind the economic phenomenon, and why it happens.

Simply put, inflation can be caused by everyone having more money to spare. Let us first look at hyperinflations. Hyperinflations are inflations of astronomical levels, as witnessed in Russia and Germany during the World Wars, when the governments of the nations printed money without control. A sudden increase in the money supply within a nations prompts people to start spending, and as they hold more money on hand, they tend to offer more and more for items they need. Over time, the price of commodities like rice can rise to thousands of times the original value.

Inflation can also be caused by the increase in price of production materials (which may or may not be due to inflation as well). For example, a rise in the cost of oil - be it due to a lower supply or a rise in demand for oil - can raise the costs of production of goods that require oil. Adding in the extra costs of raw materials, processing (which may require energy that comes from oil), transport (petrol), etc., we have a snowballing effect that in the end, only inflates prices.

We shall not look too in depth into whether or not inflation is good or bad, but generally speaking, a low and steady inflation rate is considered as healthy for any economy. This ensures that there is price stability within the economy (which investors and businessmen need for making investment and business plans), and that the economy continues to grow (more spending means more production as well).

Thus, it is indubitable that inflation exists in the financial world. Our main focus would be to ensure that people in our economies do not fall behind too much such that inflation starts to wreck havoc by raising the cost of living by too much. Governments should learn to make use of financial tools to help curb high or volatile inflation rates, so that their country's economy can experience a healthy growth.

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