Causes of Inflation

Now let’s ask the question, “What causes inflation?” Inflation is a result of more spending in the economy. As the money supply increases, then inflation increases. As there’s more money available to spend, then the prices of goods increases. If the prices of goods increase, then the purchasing power of the dollar decreases.

The opposite of inflation is deflation where the price of goods actually decreases over time, which is a sign of an irregular economy.