Effect of inflation on USA - Essay Example

Inflation is a depreciation of money, reducing their purchasing power. Inflation can be the result of a decrease in the production of goods produced at constant quantity of paper money. It is accompanied by higher prices and the lowering of living standards. But not every lowering of prices is a measure of inflation. Prices may rise because of the deterioration of product quality deterioration in the terms of the extraction of fuel and raw materials, changing societal needs (Thorp, 1981). Some economists believe that inflation should be understood by the raising general level of prices in the economy.

Inflation is a healthy reaction to the economic organism caused financial distress, the attempt to overcome it, to reach equilibrium state between goods and money supply and demand. Inflation is reflected in excessive buying demand, the causes of which are caused by the proposal as well as demand. Certainly the drop in purchasing power of money closely linked to price increases. For example, in 2006 consumer prices (CPI index) in the United States in January rose by 0.4% compared with the previous month, Bloomberg News reported with reference to the countrys Ministry of Labor data.

Analysts expected this figure to increase 0.3%. Prices excluding the cost of fuel and foodstuffs (Core CPI index) last month increased by 0.3%, which was the maximum recovery from June 2006. Experts predicted an increase of 0.2%. According to the revised data, in December, inflation stood at 0.4% for November, rather than 0.3% as previously reported. Accelerating inflation reflects a rise in prices of food, energy and clothing. Guidance Federal Reserve System (FRS), the United States, it can no longer be neglected problem of inflation in deciding on the level of basic interest rate in the near future.

Inflation in the eurozone slightly dropped in March 2006 following the decline in growth in