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Based on the Consumer Price Index, inflation is the rise in prices due to fundamental changes in the economy caused by the fluctuations of the basic costs of goods and services. Rising prices affect every sector of the economy, causing a decline in purchasing power for everyone involved.

Although inflation by most standards is considered bad, a little inflation is good to a certain extent, especially for capital investments such as homes, stocks and bonds, and other investment vehicles.

With rising prices, businesses may invest more for growth and expansion and individuals may put a higher percentage of their incomes and/or savings into growth funds and other investments, which could very well help the economy.

Inflation may not hurt when incomes rise as fast as prices but lower paid workers, retirees, people on fixed income, and many small businesses that don't have the capital to compete, have a more difficult time keeping up with the rise in prices.

Inflated prices often cause a general down turn in the costs of living. In periods of high inflation, food, clothing, fuel, healthcare, housing, and medical expenditures become unaffordable, and these changes may take place at a fast pace.

Uncontrolled, inflation can lead to the over pricing of basic necessities and the over extension of credit and debt for the average person, as well as for businesses, both large and small.

When inflation gets out of control, it has to be reigned in. One way is to raise interest rates, curb the amount of money circulating in the general economy, and to slow consumer spending.

The fallout to inflation is that people will stop buying goods and services, thereby causing a down turn in industrial and commercial output. Usually, there will also be a general slowdown in the production goods and the building of homes and materials to construct them.

This causes businesses and companies to start laying off workers and cutting back on production. If an atmosphere of pessimism and doubt takes hold, a period of recession might begin.

Without tight monetary controls by The Federal Reserve Board and other governmental agencies, inflation can easily get out of control. Periods of runaway inflation is rare, but it can and does occur occasionally.

When inflation is not put in check, it affects everyone, and what happens to prices in this country has an effect on almost every country around the world.

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