There is broad agreement among economists that the inflation rate in the long run depends on the growth rate of the money supply relative to economic growth. In the short and medium term, inflation affects supply and demand pressures in the economy and affects the relative elasticity of wages, prices and interest rates.

Inflation is low when interest rates are likely to be low. A lack of inflation is caused by a lack of demand for goods and services. Limiting the impact of monetary policy during an economic downturn or slowdown, one of the levers central banks can pull to stimulate the economy is to lower interest rates through monetary policy. When interest rates are low, central banks are unable to exert much influence over the rate cut.

In recent years, the factors that led to rising prices have been present in some countries. The evidence of inflation appears to have been the 60% reduction in the country's foreign-exchange reserves in the five years to the end of 1962.

Central banks around the world view stable or low inflation as an important goal. When trying to understand the inflation debate and interpret the inflation figures reported in the press, it is important to be aware of the possible inflation measures in order to avoid confusion. Note that some economists focus on core inflation, which excludes volatile energy and food prices, rather than aggregate inflation.

According to Huntsville, this interferes with many mechanisms of the economy. For example, if you owe $100,000 at 5% interest and inflation rises to 20% per year, then 15% of your debt is repaid each year.

Apart from the underlying effect of inflation, there are two other important effects of inflation. The most obvious consequence of high inflation is that it makes it harder for people to afford basic necessities such as batteries and light bulbs. As a result, families are struggling financially as they try to keep up with the price of cornflakes and tuition fees. Loss of purchasing power is another effect of inflation on savers and investors, who lose purchasing power.

When a national currency depreciates, it becomes more expensive to buy imported goods, and costs rise, pushing up prices. Moreover, the depreciation of the currency can push up inflation, as can oil and rising wages.

Under more normal circumstances, when inflation is caused by strong economic growth, interest rate hikes are less likely. For example, Britain experienced a period of cost-increasing inflation and low economic growth between 2008 and 2011. Since inflation was due to the cost factor and economic growth was low, banks felt it inappropriate to raise interest rates. However, they believed that this period would prove temporary and that higher interest rates would push the economy back into recession, leaving interest rates unchanged at 0.5% in 2011.