Simply speaking, inflation is more money chasing fewer goods. Inflation is an indicator of the price level in an economy and can be measured by the Consumer Price Index (CPI).
Inflation around the world, especially in the booming economies of China and India has been increasing due to rising demand for goods. Rising prices of basic necessities have partly been the cause of revolts in Tunisia and Egypt.
The riots in Egypt have hiked up oil prices and a further increase is being speculated. Though Egypt is not a major oil producer, a large amount of oil is transported across the Suez Canal which could be disrupted as a result of the riots.
In the United States, the CPI has increased only marginally by 0.5% from 219.146 in November to 220.252 in December. But with rising oil prices adding to transportation and production costs, corporations will either have to cut their profit margins or increase their selling price.
The US government has been trying to stimulate the economy by increasing money supply and putting more money into the hands of consumers. Until now, with the fear that the current recession has not yet come to an end still looming, consumers have been keeping close tabs on their spending. But it is to be seen how long it will be until they loosen their purse strings and spend those extra dollars, driving up demand for more expensive goods and thereby increasing inflation.
Data360 has come out with a detailed report titled ‘Consumer Price Index’, examining the various indicators impacting inflation. The report can be accessed here.