Answer to Question #9438 in Finance for Mahmood Ahmed Mattar

Question

How can inflation be viewed as a form of taxation ?

Answer 1

Inflation is a rise in the general level of prices over time. It may also refer to a rise in the prices of a specific set of goods or services.

Mainstream economists believe that high rates of inflation are caused by high rates of growth of the money supply. Views on the factors that determine moderate rates of inflation are more varied: changes in inflation are sometimes attributed to fluctuations in real demand for goods and services or in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money.

There are many measures of inflation. For example, different price indices can be used to measure changes in prices that affect different people. Two widely known indices for which inflation rates are reported in many countries are the Consumer Price Index (CPI), which measures consumer prices, and the GDP deflator, which measures price variations associated with domestic production of goods and services.