Explain what is meant by the term 'price inflation'. - Leaving Cert Economics - Question 5 - 2007

Price inflation refers to the general rise in the prices of goods and services over a specified period of time. This phenomenon indicates that, on average, consumers are paying more for the same basket of goods than they did previously.

Key Points:

• Rising Prices: Inflation reflects an increase in the price level, meaning that the average prices for products and services have escalated.
• Decrease in Purchasing Power: As prices rise, the purchasing power of money declines. This means individuals can buy fewer goods with the same amount of money compared to prior periods.
• Economic Impact: Inflation can impact savings, investments, and overall economic stability. If wages do not adjust to keep pace with inflation, individuals' real income effectively drops, leading to potential decreases in living standards.
• Causes: Common causes of inflation include increasing production costs, higher demand than supply, and expansionary monetary policies. Factors such as resource scarcity or increased cost of raw materials may also drive prices higher.

In summary, price inflation signifies a dual impact - rising prices and reduced value of money, necessitating close monitoring for economic policy and personal finance.