Inflation affects the value of goods and services because purchasing power parity is a fundamental determinant of exchange rates. Inflation in one country translates into a rise in the price of goods and services in one country, whereas the value of products in other countries remains unchanged where inflation is subdued. The result of this discrepancy is that the currency of the country experiencing inflation plummets against those other currencies which aren't; it is a devaluation of their currency.
Inflation is when prices of goods and services rise in an economy over a given period of time. The higher the rate of inflation, the less valuable that money is, i.e. You can buy less with your money (known as purchasing power). If interest rates aren't adjusted accordingly then people will be less likely to save as their money will devalue imminently.
- What is Inflation currently?
Inflation is well above the Federal Reserve's target rate. Demand in emerging economies is forcing energy prices up (gas, coal and oil). This feeds through the supply chain which forces the price of commodities across the board up. Food prices are also surging as grain becomes more expensive due to droughts and export restrictions in grain-exporting countries such as Russia.
Alot of businesses are struggling to stay afloat as a result of stagflation, a stagnant economy coupled with high inflation. As a result many shops simply close because they have gone bust. Towns and cities in the US, the UK, and across Europe are feeling the strain as prices and taxes rise, this then in turn leads to unemployment and generates poverty and social unrest if left unresolved.
