Friday, July 17, 2009

Inflation: Why do prices rise and fall?

At its most basic, inflation simply refers to the upward price movement of goods and services — in other words, the rise in the cost of living.

The rate at which prices move up is one of the most closely watched economic indicators.

When prices rise, the purchasing power of money drops. The expectation that prices will continue to rise leads to workers demanding more pay to prevent themselves from falling behind.

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