Why is a relatively constant inflation rate less harmful to an economy than a rate  that fluctuates a lot?
952522
Inflation is a dangerous beast.  It is necessary for growth.  The nature of growth is inflation.  Too much inflation or fluctuating inflation is dangerous.  People don’t know what to expect.  Inflation impacts many things.  Let’s look at the value of a home.  If I know that my house will grow 6% each year I am happy.  I will buy a house.  If one year it grows 50% the next year it falls by 18% then I will never know if I should buy or sell or do nothing.  \n\nConstant Inflation helps people feel confident about the future and allows them to invest with more certainty.
1158225
As interest rates go up, people start saving money and putting it into the bank.  This makes money worth more since people are not spending it as much (kinda like supply and demand).
706989
Current inflation rates are a bit higher than the central banks would like to see, but not so high that they are affecting most peoples' habits.\n\nThe real estate market is actually experiencing a period of recession; many property values are dropping somewhat.  This tends to be somewhat localized though so it may or may not apply to your area.
503501
Assuming that the matter concerned remains the same (e.g. a coke), inflation essentially means that its price has increased over time (e.g. from $1 to $1.25). It can be caused by deflation of currency (e.g. Brazil), economy growth (price driven up when demand > supply) etc.\n\nThe impact of inflation to economy is immense and is hard to be explained in this forum. Suffice to say is that it is an indicator closely monitored by most governments.
1185458
On a net basis, no one.  In real terms, higher interest rates are a result of inflation which is an asset transfer usually from the poor to the rich.  However, there can be no profit if rates rise and no real transfer.\n\nNow, there are individuals and organizations who personally benefit and others who lose.  On average, everything is neutral.  Anyone holding cash, variable rate instruments or short long dated fixed rate instruments is ahead.  Anyone fully invested, holding fixed rate instruments or short floating rate securities is losing.  Commodity prices tend to fall as rates rise, existing owners tend to lose, but consumers then buy things at lower costs and win an equal amount (or approximately).
73553
The value of money is relative. If the government started printing excess money, it would drive down the value of our money relative to the value of goods and relative to the value of other currencies around the world.\n\nNot only would we fail to reduce our debt, but we would destabilize our economy.
766521
It is impossible to disagree with this analysis.  Just look at the economy under Carter in the 1970s.  When the top tax rate was at 70%, we had rampant inflation, high interest rates, and record unemployment.  All of this was a direct result of the out-of-control tax hike.  Businesses, having to pay exhorbitant taxes, passed this expense on to the consumer causing high inflation and thus lowering the value of the dollar.  The fed raised interest rates to slow the inflation, causing home ownership to be out of reach for more Americans.  Businesses could not afford to hire more employees because the money that they would have paid them with was going to the government in taxes.
645558
We are experiencing relatively high levels of inflation. That is why our dollars are losing value in comparison. But you should remember that this makes American goods more expensive, which will decrease net exports....this should make some conservatives happy (those who argue that we have a negative trade balance with countries like China). Anyway, this is not necessarily a bad situation, it just depends on how you view it on the political spectrum. Oh, P.S. I am a conservative also, I just read what I wrote and realized that it came across wrong. No offense
189358
It is a way of controlling inflation.  With low unemployment you have more people competing for goods and services which drives up prices.  Higher unemployment means there is less purchasing dollars out there which tends to stablize or lower prices.
199954
An inflationary gap means that demand has outstripped supply. This typically leads to inflation of prices because there is less supply to meet the demand, if the demand curve for the product in question is inelastic, prices will rise because the supply curve will have shifted to intersetct the demand curve at a higher price point.\n\nOr more simply put, people will be willing to pay more for the product because it's not as easy to come by.
738233
Yes it is but that does happen sometimes...\n\nThe economy is like a pendulum swaying from side to side. The Fed's job is to try to predict each sway one way or the other. Following their calculations, they make alterations in order to compensate each swing with, of course, the target being the middle of the pendulum.\n\nThe point is that economics is not an exact science and sometimes the Feds get it wrong. Right now, we are seeing a backdraft from too many rate increases. This has happened before btw.\n\nWhen you add in too many rate increases, a declining housing market and oil production decreases, what you are left with is a economy that has slammed on its breaks.\n\nThen on top of all that, we are on the edge of a complete recession once the ripple effect of 4 million jobs moving overseas hits us.
770728
Budget deficits are only good when\n(a) there is no risk of inflationary pressure\n(b) the country is in recession\n(c) whatever is loaned is spent on increasing productivity.\n\nWhile fiscal discipline is worth striving for, it would be problematic if low interest rates result in a blow-out in consumer borrowing.
688950
the short answer is inflation . when inflation is high the fed will raise the interest rate to combat and try to slow down inflation .
1142697
Printing more money causes inflation.  The more money there is in the economy for the same number of goods, the greater the cost of each good.  \n\nInterest rates are a combination of the inflation rate and the "real" interest rate (that discounted for inflation).  If inflation increases, the interest rate goes up.  The government pays its debt with interest.  As such, it just got a lot more costly to pay off the debt.\n\nSo ... if a lot of money is printed, we get all of the negatives associated with inflation and the devaluation of the currency, plus it will cost a lot more to pay off the debt.
972002
They have a statistic that shows real (inflation adjusted) wages are up for this quarter. Middle income wages stagnated for a long time before that, so the fact that wages went up a bit isn't as encouraging as it sounds. GPD is down to a 1.6% annualized rate, and this is NOT a good growth rate. More troublesome, business is NOT reinvesting its huge Bush era tax savings in the domestic economy in the form of capital investment. This is a bad sign for future economic growth. Then there's the little matter of the growing deficit and national debt.
823137
It's a way to gauge interest rates, but a poor way to gauge personnel inflation.  If you love cheese and movies and have serious health care problems, your personnel inflation rate will probably be several times higher than the CPI.  I was watching one show where this guy's personnel inflation rate jumped 1,500% from the previous year just because of what he bought.
508214
The Reserve Bank of a country usually will decide how much money is in circulation.\n\nThis is governed by the interest rate it will charge for the money that is on offer for borrowers which can be other banks who will in turn lend it to other borrowers.\n\nIf the inflation is likely to increase then the supply of money is restricted by increasing the interest rate so that the borrowers will not borrow or borrow less.\n\nConversely to kick start the economy the interest rates are decreased so that the companies will borrow and start the businesses and promote economic growth.