Business and Personal Finance Dictionary

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• INFLATION
  
  Inflation is a persistent increase in prices, triggered when demand for goods is greater than the available supply. Moderate inflation often accompanies economic growth, but the Federal Reserve Bank and central banks in other nations try to keep inflation in check, usually by decreasing the money supply when inflation heats up, making it more difficult to borrow. Among the more obvious methods used by the Fed are raising the federal discount rate (the rate the Fed charges member banks on loans) and/or the federal funds rate (the rate that banks charge to lend money to other banks overnight). That reduces the money available for investment and spending, since the banks, in turn, raise the rates they charge borrowers. Hyperinflation, when prices rise by 100% or more annually, can destroy economic, and sometimes political, stability by driving the price of necessities higher than people can afford.
  
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