Inflation refers to the phenomenon that excessive money supply or demand leads to a general rise in prices. When inflation occurs, the number of goods and services that people can buy with the money in their hands decreases, so it is also called currency devaluation.

Inflation is mainly caused by two reasons:

1. Too much money supply. If the central bank or the government excessively prints money or increases the credit line, it will lead to an increase in the money supply in the market. Because the amount of money increases, the total amount of goods does not increase correspondingly, and the demand is greater than the supply, and the price will rise.

The demand is too strong. Excessive demand, exceeding supply, will also lead to inflation. For example, when the demand for a particular commodity increases sharply, the shortage of supply will lead to an increase in price. If this phenomenon occurs in many commodities, it will lead to an overall price increase.

The impact of inflation on the economy includes the following points:

1. Inflation will reduce the purchasing power of money, but the actual repayment amount of debt remains unchanged. Therefore, borrowers can pay off their debts more easily, and lenders will suffer losses.

2. Investment creates uncertainty. Inflation will reduce the purchasing power of investment, so investors need to consider the future inflation rate to decide whether to invest.

3. International trade activities have become more difficult. Inflation will lead to an increase in the export price of the country, thus reducing its competitiveness in the international market.

In order to avoid the economic problems caused by inflation, the government and the central bank usually take some measures to control inflation. Among them, it is common to adjust the money supply, raise interest rates and implement monetary tightening policies.