According to the definitions found in many economics' books, inflation is generally the decrease in the purchasing power of currency or the general increase in the prices of products and services.
Some dictionaries define inflation as a persistent rise in the general level of prices of products and services caused due to an increase in the available currency in circulation and credit surpassing the proportion of available products and services.
Both ways of defining inflation provide us with a general background that inflation is closely related to the increase in general level of prices of products and services.
The prices of products and services depend on both the amount of money in circulation in an economy and the products and services available for purchase in the economy.
Whenever there exists a relatively large amount of money available in the economy in comparison to the amount of products and services, the prices tend to increase and the other way around also holds true.
When the central bank or the reserve bank of a country eases borrowing from the banks or increases the currency supply in circulation which is proportionally greater than the current level of production of products and services in the country, the prices usually increase.
Please note that the prices may also rise due to a reduction in the production or a reduction in supply of products and services.
