A rise in the standard price of commodities and services across the economy is referred to as inflation. The main drivers of inflation are the growth in the money supply and the demand for goods and services. Inflation can benefit businesses, leading to increased product demand and higher profits. However, it can also be detrimental for consumers as it reduces their purchasing power and erodes the value of their savings. 

What is inflation? 

Inflation is the rate of price growth over a predetermined time period. A country’s cost of living or the overall increase in prices are two examples of broad metrics used to quantify inflation. However, for other things, like as food or services, it may also be calculated with greater accuracy. Inflation is the measure of how much the relevant group of goods and services have increased in price over a given period of time, usually a year. 

Understanding inflation 

The cost of living for consumers is influenced by the cost of living for households and the cost of various goods and services. Government organisations undertake home surveys to determine a basket of frequently purchased commodities and monitor the costs of buying this basket over time to calculate the typical consumer’s cost of living. (Housing costs, including rent and mortgage, make up the greatest portion of the American consumer basket.)  

The consumer price index (CPI), the most often used indicator of inflation, measures the cost of this basket at a particular moment relative to a base year. On the other hand, consumer price inflation measures the percentage variation in the CPI over a given period. 

The objective of measuring inflation is to determine the overall effect of price increases for various goods and services. It enables a single-valued presentation of the rise in the price of commodities and services over time in an economy. 

Causes of inflation 

There are many different causes of inflation, but the most common cause is simply an increase in the money supply. When the money supply grows too rapidly, it can lead to inflationary pressures in the economy. This can happen when the central bank prints too much money or commercial banks make too many loans. Other causes of inflation include increases in the cost of raw materials or government spending. 



Types of inflation 


There are generally four types of inflation: demand-pull inflation, cost-push inflation, built-in inflation, and imported inflation.  

  • Demand-pull inflation 

It occurs whenever there is an increase in the demand for goods and services in an economy. This increase in demand can be due to several factors, such as population growth, government spending, or consumer confidence. When demand for goods and services increases, businesses will raise prices to meet this demand.   

  • Cost-push inflation  

It occurs when the cost of production for goods and services rises. This can be due to increased raw materials, labour, or energy costs. Businesses will pass these costs on to consumers when production costs go up through higher prices.  

  • Built-in inflation 

It is built into the price of goods and services over time. This type of inflation is often due to rise in the cost of living, such as higher housing costs, healthcare costs, or food costs. Businesses will boost prices to keep up with rising costs when living standards rise. 

  • Imported inflation  

A rise in the valuation of imported goods and services causes it. This can happen due to many factors, such as a devaluation of the currency, an increase in import tariffs, or an increase in the price of oil. When imported goods and services increase, businesses will pass these costs on to consumers through higher prices. 

Pros and cons of inflation 

Some of the advantages of inflation are: 

  • People who own physical assets (like real estate or stockpiled commodities) that are valued in their native currency might prefer mild inflation since it will increase the value of their possessions, which they can then sell for more money. 
  • Due to the expectation of higher returns than inflation, firms and individual investors frequently speculate on hazardous business ventures due to inflation. 

There are several potential drawbacks associated with inflation.  

  • First and foremost, it can lead to higher prices for goods and services, which can be a major burden for consumers, especially those on fixed incomes.  
  • Additionally, inflation can erode the value of savings and investments and reduce purchasing power. This can be a problem for seniors and retirees who rely on their savings to cover basic living expenses.  
  • Finally, inflation can create uncertainty and instability in the economy, leading to slower economic growth. 

Frequently Asked Questions

Inflation will be advantageous to those who must pay off huge debts. The effects of inflation will be felt most by those with fixed salaries and cash savings. When the money’s value declines, fewer products can be bought with the same amount of money than they could previously. This is known as inflation. 


Inflation can be good for companies as long as it is managed correctly. When inflation is low, it can provide companies with an opportunity to increase prices without fear of customers switching to cheaper alternatives. This can boost profits and allow companies to invest in new products or services. Inflation can also help to create jobs as companies expand to meet increased demand. 

However, inflation can also be a risk for companies. If inflation is too high, it can eat into profits and make it difficult to maintain prices. This can lead to customers switching to cheaper alternatives, damaging a company’s bottom line. Inflation can also make it difficult to predict costs, which can make it difficult to budget properly. 


The inflation rate is the percentage change in the general price level of services and goods in an economy over time. The inflation rate measures the change in the cost of living and is also a key indicator of economic growth. The inflation rate is calculated by taking the percentage change in the prices of a basket of goods and services. 


We know that inflation occurs when there is an increase in the price of goods and services over time. Each dollar you have buys less products and services than what it did previously when inflation is strong. 

Inflation favours lenders because the money they loan you today will be worth more in the future when you have to repay the loan. In other words, when inflation is high, the value of money decreases, and lenders are paid back in dollars worth less than the dollars they originally loaned out.  

On the other hand, borrowers are hurt by inflation because they have to repay their loans with dollars worth more than they borrowed. 


nflation caused by previous events and continues into the present is known as built-in inflation. One of the three main factors influencing the current inflation rate is built-in inflation. 

Adaptive expectations, or the notion that individuals anticipate present inflation rates to persist in the future, are connected to built-in inflation. People may anticipate an ongoing increase at a similar pace as product and service prices grow. 

Related Terms

    Read the Latest Market Journal

    Deciphering the Updates: Understanding the latest CPF Changes

    Published on Mar 5, 2024 11 

    The latest changes to the Central Provident Fund (CPF), as unveiled in the 2024 Budget...

    Weekly Updates 4/3/24 – 8/3/24

    Published on Mar 4, 2024 23 

    This weekly update is designed to help you stay informed and relate economic and company...

    Weekly Updates 26/2/24 – 1/3/24

    Published on Feb 28, 2024 62 

    This weekly update is designed to help you stay informed and relate economic and company...

    All-in-One Guide to Investing in China via ETFs

    Published on Feb 27, 2024 426 

    Start trading on POEMS! Open a free account here! Why China? In the vast landscape...

    Navigating the Post-Inflation Landscape in 2024: Top 10 US Markets Key Events to Look out for

    Published on Feb 23, 2024 447 

    Start trading on POEMS! Open a free account here! In 2023, the United States experienced...

    From Boom to Bust: Lessons from the Barings Bank Collapse

    Published on Feb 23, 2024 62 

    Barings Bank was one of the oldest merchant banks in England with a long history...

    Decoding FX CFD 2.0

    Published on Feb 20, 2024 70 

    This article is aimed at availing information and knowledge essential to intermediate forex traders. It...

    Weekly Updates 19/2/24 – 23/2/24

    Published on Feb 19, 2024 89 

    This weekly update is designed to help you stay informed and relate economic and company...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066